PORTFOLIO

Tax Credits: Concepts and Calculation (Portfolio 506)

Tax Management Portfolio, Tax Credits: Concepts and Calculation, No. 506-3rd, serves three primary functions for the practitioner. First, it provides a conceptual framework for handling issues relating to credit concepts. The portfolio explores the nature, scope, significance, definition, and fundamental concepts of credits. Topics discussed include the timing of credits, pass-through rules, trade or business credits, pre-payment-type credits, credits for individuals, limitations and restrictions on credits, and the assignment of credits.

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DESCRIPTION

Tax Management Portfolio, Tax Credits: Concepts and Calculation, No. 506-3rd, serves three primary functions for the practitioner. First, it provides a conceptual framework for handling issues relating to credit concepts. The portfolio explores the nature, scope, significance, definition, and fundamental concepts of credits. Topics discussed include the timing of credits, pass-through rules, trade or business credits, pre-payment-type credits, credits for individuals, limitations and restrictions on credits, and the assignment of credits.
Second, the portfolio explains the rules of numerous specific provisions subsumed in the broad categories referred to above (for example, the earned income credit, household and dependent care credit, clinical drug testing credit, and nonconventional source fuels credit).
Third, the practitioner can use the portfolio as a tool for identifying Tax Management portfolios that provide an in-depth treatment of specific topics discussed here. Cross references to applicable portfolios appear in each section of this portfolio.


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AUTHORS

JAMES EDWARD MAULE
James Edward Maule, B.S., University of Pennsylvania (1973); J.D., Villanova University (1976); LL.M. (Taxation), George Washington University (1979); lecturer, Villanova University Graduate Tax Program and Tax Forum CLE Programs; lecturer, Philadelphia Bar Association Tax Section; member, U.S. Income Advisory Board, Tax Management Inc.; former attorney-advisor, United States Tax Court, Judge Herbert L. Chabot; former attorney-advisor, Chief Counsel to the Internal Revenue Service; former Editorial Advisory Board member and Columnist, Journal of Limited Liability Companies; former lecturer, ALI-ABA; former lecturer, Tax Management, Inc. & Continuing Legal Education Satellite Network; former lecturer, Pennsylvania Bar Institute; former lecturer, Georgetown University Law Center Institute on State and Local Taxation; former lecturer, The Dickinson School of Law CLE Programs; member, American Bar Association, Section of Taxation, Committee on S Corporations (Consultant and former Chair, Subcommittee on Subchapter S and State Law; former Chair, Subcommittee on Comparison of Partnerships and S Corporations); member, American Bar Association, Section of Taxation, Committee on Teaching Taxation (former Chair, Subcommittee on Manuscripts and Unpublished Teaching Materials; member, Subcommittee on Important Developments); member, American Bar Association, Section of Taxation, Tax Practice Management Committee; member, American Bar Association, Section of Taxation, Formation of Tax Policy Committee; member, American Bar Association, Section of Taxation, Committee on Tax Structure and Simplification; former Chair, American Bar Association, Section of Taxation, Phaseout Tax Elimination Project; former member, American Bar Association, Section of Taxation, Task Force on Pass-Through Entities; former member, American Bar Association, Section of Taxation, Task Force on Legislative Recommendation No. 86-1; former member, Philadelphia Bar Association Tax Section; author and owner, TaxJEM Inc., publisher of computer assisted legal instruction programs; owner, JEMBook Publishing Company, publisher of law and genealogy books; author of numerous books, monographs, and book chapters; contributor to various tax periodicals.

TABLE OF CONTENTS

Detailed Analysis

I. Introduction

A. Overview

1. The Nature of Credits

2. The Significance of Credits

3. The Concept of Credits

4. The Scope of Credits

5. The Application of Credits

6. The Assignment of Credits

B. Historical Background

1. Introduction

2. Early Federal Income Tax Statutes

a. The First Civil War Income Tax Act

b. The Second Civil War Income Tax Act

c. The Third Civil War Income Tax Act

d. The Reconstruction Era Income Tax Act

e. The Income Tax of 1894

f. The Corporate Excise Tax of 1909

3. Passage of the Sixteenth Amendment

4. Post-Sixteenth Amendment Income Tax Acts

a. Revenue Act of 1913

b. Revenue Act of 1916

c. Revenue Act of 1918

d. Revenue Act of 1921

e. Revenue Act of 1924

f. Subsequent Statutory Development

(1) Pre-Codification

(2) Internal Revenue Code of 1939

(3) Internal Revenue Code of 1954

(4) Internal Revenue Code of 1986

II. The Concept and Scope of Credits

A. The Significance of Credits

1. Introduction

2. Impact on Taxpayer's Income Tax Account Status

a. In General

b. Alternative Minimum Tax Credits

(1) In general

(2) Business-Related Credits

(3) Personal Credits

(4) Refundable Credits

(5) Other Credits

c. Other Federal Taxes

d. Impact on State and Local Income Taxes

6. Administrative Matters

a. Return Filing Requirements

b. IRS Computation of Tax

7. Measurement of Other Computation Steps

a. Computation of Taxable Income Elements

b. Computation of Tax Liability

B. Concept and Definition

1. Introduction

a. Definitional Aspects

b. Other Aspects

2. The Concept of Expenditure, Outlay, and Policy Goal

a. Expenditure or Outlay

(1) In General

(2) Reduction in Economic Wealth

(3) Capital Expenditures

b. Policy Goal

c. The Impact of Reimbursement

(1) Effect on Credit

(a) In General

(b) Reimbursement Includible in Gross Income

(c) Reimbursement Not Includible in Gross Income

(2) Failure to Seek Reimbursement

d. Substantiation of Expenditure or Outlay

(1) In General

(2) Strict Substantiation Requirements

(a) Entertainment, Business Gift, and Listed Property

(b) Foreign Taxes

(3) Less Strict Substantiation Requirements

3. The Concept of Statutory Allowance

4. The Concept of Refundable and Nonrefundable Credits

5. Credits Not Taken into Account for Certain Purposes

C. Constitutional Concerns

1. In General

a. Credits Not Equivalent to Rights

b. Congressional Discretion

2. Limitations on Congressional Power to Enact Credits

a. In General

b. Classification of Taxpayers for Credit Purposes

c. Limitation of Credits to Specific Transactions

3. Failure to Provide Specific Credits

4. Imposition of Limitations or Restrictions on Credits

D. The Problem of Imputed Credits

1. In General

2. Services Performed and Goods Produced for One's Self

3. Owner Use of Property

E. The Scope of Credits

1. In General

a. Selectivity of Credit Provisions

b. Types of Credits

c. Affected Taxpayers

2. Credit Limitations and Restrictions

a. In General

b. Grounds for Limitations and Restrictions

(1) Computational Limitations

(2) Avoidance of Double Benefits

(3) Public Policy Restrictions

3. The Impact of Timing Rules

a. In General

b. Method of Accounting

(1) In General

(2) Principal Methods

(3) Restrictions on Method

c. General Rule for Timing of Credit

d. Generally Applicable Exceptions

(1) Amount at Risk Limitation

(2) Passive Activity Credits

e. Carrybacks and Carryforwards

f. Foreign Tax Credit Timing

g. Credit Recapture

(1) In General

(2) Rehabilitation, Energy, Advanced Coal Project, Gasification Project, Advanced Energy Project, and Former Reforestation Credits

(3) Recapture of Low-Income Housing Credit

(4) Recapture of Mortgage Interest Credit

(5) Recapture of Qualified Electric Vehicle Credit for Vehicles Placed in Service Before 2007

(6) Recapture of Education Credit

(7) Recapture of New Markets Credit

(8) Recapture of Employer-Provided Child Care Credit

(9) Recapture of Alternative Motor Vehicle Credit

(10) Recapture of Alternative Fuel Vehicle Refueling Property Credit

(11) Recapture of Qualified Plug-In Electric Drive Low-Speed Vehicle, Motorcycle, and Three-Wheeled Vehicle Credit

(12) Recapture of First-Time Homebuyer Credit

(13) Recapture of Carbon Dioxide Sequestration Credit

(14) Recapture of New Qualified Plug-In Electric Drive Motor Vehicle Credit

4. Foreign Persons and Entities and Activities Abroad

a. In General

b. Credits of Nonresident Aliens

c. Foreign Corporations

d. Income Tax Treaties

e. Residents of Possessions and Puerto Rico

f. U.S. Taxpayers’ Activities Abroad

(1) Foreign Earned Income and Housing Cost

(2) Controlled Foreign Corporations

(3) Qualified Electing Funds

F. The Passing Through of Credits

1. In General

2. Partnerships and S Corporations

a. Partners

b. S Corporation Shareholders

3. Credits in Respect of a Decedent

4. Credits from an Interest in an Estate or Trust

a. In General

b. Estates and Non-Grantor Trusts

c. Credits of Grantor Trusts

(1) In General

(2) Conditions Under Which Grantor Trust Rules Apply

5. Credits from an Interest in a Regulated Investment Company

6. Estate of a Debtor

7. Activities of U.S. Persons Abroad

III. Trade or Business and For-Profit Activity Credits

A. General Business Credit

1. In General

2. Investment Credit

a. In General

b. Rehabilitation Credit

(1) In General

(2) Computation of Credit

(a) In General

(b) When Taken into Account

(i) In General

(ii) Progress Expenditures

(3) Qualified Rehabilitation Expenditures

(4) Ineligible Property

(5) Basis Adjustments

(6) Other Special Rules

c. Energy Credit

(1) In General

(2) Computation of Credit

(a) In General

(b) Energy Percentage

(3) Energy Property

(a) In General

(b) Solar Energy Property

(c) Fiber-Optic Solar Energy Equipment

(d) Geothermal Energy Property

(e) Qualified Fuel Cell Property

(f) Qualified Microturbine Property

(g) Combined Heating and Power System Property

(h) Small Wind Energy Property

(i) Thermal Energy Source Property

(j) Qualified Investment Credit Facilities

(4) Subsidized Property

(5) Progress Expenditures

(a) In General

(b) Progress Expenditure Property

(c) Qualified Progress Expenditures

(d) Recapture of Credit for Progress Expenditures Made Before Grant in Lieu of Credit

(6) Grant in Lieu of Credit for Specified Energy Property

d. Qualifying Advanced Coal Project Credit

(1) In General

(2) Computation of Credit

(a) In General

(b) Credit Allocation

(c) Qualified Investment

(d) Subsidized Property

(e) Progress Expenditures

(3) Eligible Property

(a) In General

(b) Qualifying Advanced Coal Project

(c) IGCC

(4) Qualifying Advanced Coal Project Program

e. Qualifying Gasification Project Credit

(1) In General

(2) Computation of Credit

(a) In General

(b) Credit Allocation

(c) Qualified Investment

(d) Subsidized Property

(e) Progress Expenditures

(3) Eligible Property

(a) In General

(b) Qualifying Gasification Project

(4) Qualifying Gasification Project Program

(5) Recapture

f. Qualifying Advanced Energy Project Credit

(1) In General; Amount of Credit

(2) Qualified Investment

(3) Eligible Property

(4) Qualifying Advanced Energy Project

(5) Qualifying Advanced Energy Project Program

g. Former Reforestation Credit

(1) In General

(2) Computation of Credit

(a) In General

(b) Maximum Dollar Limitation

(i) In General

(ii) Related Taxpayers

(iii) Basis Allocation

(3) Qualified Timber Property

(4) Reforestation Expenditures

3. Research Credit

4. Orphan Drug Credit

a. In General

b. Computation of Credit

(1) In General

(2) Qualified Clinical Testing Expenses

(a) In General

(b) In-House Clinical Testing Expenses

(i) In General

(ii) Qualified Services

(iii) Supplies and Wages

(iv) Related Taxpayers

(c) Contract Clinical Testing Expenses

(d) Exception for Funded Clinical Testing

(i) In General

(ii) Retention of No Substantial Rights in Clinical Testing

(iii) Retention of Substantial Rights in Clinical Testing

c. Clinical Testing

(1) In General

(2) Human Clinical Testing

(3) Rare Disease or Condition

(a) In General

(b) Cost of Developing and Making Drug Available

(i) In General

(ii) Cost

(iii) Development for More Than One Purpose

(iv) Revenues from Sale of Drug

(4) Foreign Testing

d. Special Rules for Related Persons

(1) Controlled Corporate Groups

(2) Commonly Controlled Trades or Businesses

e. Special Rules for Pass-Through Entities

(1) Estates and Trusts

(2) Partnerships

(3) S Corporations

5. Enhanced Oil Recovery Credit

a. In General

b. Computation of Credit

(1) In General

(2) Reduction for Increased Crude Oil Prices

(3) Qualified Enhanced Oil Recovery Costs

(a) In General

(b) Qualified Enhanced Oil Recovery Project

c. Election to Forgo Credit

6. Renewable Electricity Production Credit

a. In General

b. Credit Amount

(1) Credit Amount Before Reductions

(a) In General

(b) Qualified Kilowatt Hours

(c) 50% Reduction for Certain Production

(d) Refined Coal

(e) Steel Industry Fuel

(f) Indian Coal

(2) Reduction for Increased Electricity Prices

(a) In General

(b) Refined Coal

(c) Steel Industry Fuel

(d) Indian Coal

(e) Inflation Adjustment Factor

c. Related Persons

d. Qualified Energy Resources

(1) In General

(2) Closed-Loop Biomass

(3) Open-Loop Biomass

(4) Geothermal Energy

(5) Small Irrigation Power

(6) Municipal Solid Waste

(7) Qualified Hydropower

(8) Marine and Hydrokinetic Renewable Power

(9) Refined Coal

(a) In General

(b) Steel Industry Fuel

(10) Indian Coal

(11) Disqualified Wind-Generated Electricity

e. Qualified Facility

(1) In General

(2) Wind Facility

(3) Closed-Loop Biomass Facility

(4) Open-Loop Biomass Facility

(5) Geothermal Energy Facility

(6) Solar Energy Facility

(7) Small Irrigation Power Facility

(8) Municipal Solid Waste Facility

(9) Qualified Hydropower Facility

(10) Marine and Hydrokinetic Renewable Power Facility

(11) Refined Coal Facility

(a) In General

(b) Steel Industry Fuel Facility

(12) Indian Coal Facility

f. Reductions for Subsidies

g. Estates and Trusts

h. Agricultural Cooperatives

i. Claiming the Credit

j. Election of Energy Credit in Lieu of Renewable Electricity Production Credit for Qualified Facilities

k. Grant in Lieu of Credit for Qualified Facilities

7. Alcohol Fuels Credit

a. In General

b. Computation of Credit

(1) In General

(2) Alcohol Mixture Credit

(3) Alcohol Credit

Content

(4) Small Ethanol Producer Credit

(5) Cellulosic Biofuel Producer Credit

(6) Ethanol

c. Product Definitions

(1) Alcohol

(2) Special Fuel

(3) Volume of Alcohol

d. Eligible Small Ethanol Producer

e. Special Rules for Related Persons and Pass-Through Entities

(1) Estates and Trusts

(2) Controlled Corporate Groups

(3) Commonly Controlled Taxpayers

(4) Pass-Through Entities

(5) Cooperatives

f. Excise Tax on Prohibited Changes in Use or Character

g. Election to Forgo Credit

8. Trans-Alaska Pipeline Liability Fund Credit

a. In General

b. Computation of Credit

(1) In General

(2) Limitation on Amount

(3) Limitation on Carryback

c. Credit Financed by Trust Fund

9. Low-Income Housing Credit

a. In General

b. Computation of Credit

c. Recapture of Low-Income Housing Credit

10. Community Development Credit

a. In General

b. Amount of Credit

c. Credit Period

d. Qualified CDC Contribution

e. Selected CDCs

(1) In General

(2) Qualified Operational Area

11. New Markets Credit

a. In General

b. Computation of Credit

c Recapture of New Markets Credit

12. Disabled Access Credit

a. In General

b. Computation of Credit

(1) In General

(2) Eligible Access Expenditures

(a) In General

(b) Qualified Access Purposes

(c) Disability

c. Eligible Small Business

d. Special Rules for Related Persons

(1) Controlled Corporate Groups

(2) Commonly Controlled Trades or Businesses

e. Special Rules for Pass-Through Entities

(1) Partnerships

(2) S Corporations

13. Work Opportunity Credit/Welfare-to-Work Credit

a. In General

b. Employees Hired Before January 1, 2007

(1) Work Opportunity Credit

(a) In General

(b) Computation of Credit

(i) In General

(ii) Qualified First-Year Wages

(c) Wages

(i) In General

(ii) Special Rules

(iii) Exceptions

(d) Members of Targeted Groups

(i) Targeted Group Classification

(ii) Certification Requirements

(iii) Designated Local Agency

(iv) Hiring Date

(e) Disqualified Individuals

(i) In General

(ii) Related Individuals

(iii) Nonqualifying Rehires

(iv) Individuals Not Meeting Minimum Employment Period

(v) Welfare-to-Work Credit Individuals

(f) Special Rules with Respect to Employers

(i) Controlled Corporate Groups

(ii) Commonly Controlled Employers

(iii) Tax-Exempt Organizations

(iv) Estates and Trusts

(v) Regulated Investment Companies and Real Estate Investment Trusts

(vi) Farmers’ and Other Cooperatives

(g) Election to Forgo Credit

(h) Deduction for Wages Reduced by Credit

(2) Welfare-to-Work Tax Credit

(a) In General

(b) Computation of Credit

(i) In General

(ii) Qualified First-Year Wages

(iii) Qualified Second-Year Wages

(iv) Qualified Wages

(v) Coordination with Other Credits

(c) Wages

(i) In General

(ii) Special Rules

(A) Agricultural and Railway Labor

(B) Successor Employers

(C) Employees Performing Services for Other Persons

(iii) Exceptions

(A) On-the-Job Training Payments

(B) Work Supplementation Payments

(C) Payments During Labor Disputes

(d) Long-Term Family Assistance Recipients

(i) In General

(ii) Designated Local Agency

(iii) Certification Requirements

(A) In General

(B) Incorrect Certifications

(e) Disqualified Individuals

(i) In General

(ii) Related Individuals

(iii) Nonqualifying Rehires

(iv) Individuals Not Meeting Minimum Employment Period

(f) Special Rules with Respect to Employers

(i) Controlled Corporate Groups

(ii) Commonly Controlled Employers

(A) In General

(B) Common Control

(I) In General

(II) Parent-Subsidiary Group

(III) Brother-Sister Group

(IV) Combined Group

(V) Special Rules

(iii) Tax-Exempt Organizations

(iv) Estates and Trusts

(v) Regulated Investment Companies and Real Estate Investment Trusts

(vi) Farmers’ and Other Cooperatives

(g) Election to Forgo Credit

(h) Deduction for Wages Reduced by Credit

c. Employees Hired After December 31, 2006

(1) In General

(2) Changes to Work Opportunity Credit

(a) Eligibility of Ex-Felons

(b) Increase in Maximum Age for Eligibility of Food Stamp Recipient

(c) Extension of Paperwork Filing Deadline

(3) Calculation of Credit

(a) First-year Wages

(b) Second-year Wages

14. [Reserved]

15. Empowerment Zone Employment Credit

a. In General

b. Computation of Credit

c. Qualified Zone Wages

(1) In General

(2) Special Rules

(a) Successor Employers

(b) Employees Performing Services for Other Persons

d. Qualified Zone Employee

(1) Eligible Employees

(2) Ineligible Employees

e. Special Rules for Employers

(1) Controlled Corporate Groups

(2) Tax-Exempt Organizations

(3) Estates and Trusts

(4) Regulated Investment Companies and Real Estate Investment Trusts

(5) Farmers’ and Other Cooperatives

f. Empowerment Zone

16. Indian Employment Credit

a. In General

b. Computation of Credit

c. Qualified Wages and Health Insurance Costs

(1) Qualified Wages

(2) Qualified Health Insurance Costs

(3) Nonqualifying Wages and Health Insurance Costs

(4) Limitation on Amount

(5) Special Rules

(a) Successor Employers

(b) Employees Performing Services for Other Persons

d. Qualified Employees

(1) In General

(2) Ineligible Employees

(a) In General

(b) Highly Compensated Employees

(c) Non-Business Employees

(d) Related Individuals

(e) Five Percent Owners

(f) Gaming Employees

e. Special Rules with Respect to Employers

(1) Controlled Corporate Groups

(2) Tax-Exempt Organizations

(3) Successor Employers; Employees Performing Services for Other Persons

(4) Estates and Trusts

(5) Regulated Investment Companies and Real Estate Investment Trusts

(6) Farmers’ and Other Cooperatives

17. Small Employer Pension Plan Startup Cost Credit

a. In General

b. Limitation

c. Eligible Employer

d. Qualified Startup Costs

e. Aggregation Rules

18. Employer-Provided Child Care Credit

a. In General

b. Qualified Child Care Expenditures

c. Qualified Child Care Resource and Referral Expenditures

d. Recapture of Credit

e. Special Rules with Respect to Employers

(1) Controlled Corporate Groups

(2) Estates and Trusts

(3) Partnerships

f. Impact on Adjusted Basis

19. Employer Social Security Credit

a. In General

b. Excess Employer Social Security Tax

c. Election to Forgo Credit

20. Biodiesel Fuels Credit

a. In General

b. Biodiesel Mixture Credit

(1) In General

(2) Qualified Biodiesel Mixture

c. Biodiesel Credit

d. Small Agri-Biodiesel Producer Credit

(1) In General

(2) Agri-biodiesel

(3) Controlled Corporate Groups

(4) Commonly Controlled Taxpayers

(5) Pass-Through Entities

(6) Cooperatives

e. Renewable Diesel

f. Former Increase for Agri-Biodiesel

g. Claiming the Credit

h. Excise Tax on Prohibitive Changes in Use or Character

i. Estates and Trusts

21. Railroad Track Maintenance Credit

a. In General

b. Eligible Taxpayer

c. Assignment of Track

d. Qualified Railroad Track Maintenance Expenditures

e. Limitation

f. Special Rules

(1) Controlled Groups of Corporations and Commonly Controlled Businesses

(2) Basis Adjustment

(3) Carryback

22. Low Sulfur Diesel Fuel Credit

a. In General

b. Amount of Credit

(1) In General

(2) Maximum Amount

c. Small Business Refiner

d. Qualified Costs

e. Certification Requirement

f. Cooperatives

23. Marginal Well Production Credit

a. In General

b. Computation of Credit

(1) Credit Before Reductions

(a) In General

(b) Qualified Crude Oil and Natural Gas Production

(2) Reductions and Limitations

(a) Reduction as Oil and Gas Prices Increase

(b) Production Limitations

c. Inflation Adjustment

d. Special Rules

(1) Carryback of Credit

(2) Eligibility for Nonconventional Source Fuels Credit

24. Distilled Spirits Credit

a. In General

b. Computation of Credit

c. Eligible Wholesaler

d. Average Tax Financing Cost

25. Advanced Nuclear Power Plant Facilities Production Credit

a. In General

b. Computation of Credit

(1) Credit Before Limitations

(a) In General

(b) Advanced Nuclear Power Facility

(2) Limitations

(a) National Limitation

(b) Annual Limitation

(c) Phaseout

(d) Other Limitations

(i) U.S. Production

(ii) Related Person

(iii) Attribution of Production

(iv) Estates and Trusts

(e) IRS Guidance

26. Nonconventional Source Fuels Credit

a. In General

b. Computation of Credit

(1) Credit Before Reductions

(a) In General

(b) Sales of Qualified Fuels

(c) Related Persons

(2) Reductions and Limitations

(a) Reduction for Increased Crude Oil Prices

(b) Reduction for Subsidies

(c) Reduction for the Energy Credit

(d) Reduction for Enhanced Oil Recovery Credit

(e) Pre-2005 Limitation Based on Other Credits

(3) Inflation Adjustment Factor

c. Qualified Fuels

(1) In General

(2) Physical Definition Requirement

(a) In General

(b) Qualified Natural Gas

(c) Solid Synthetic Fuels

(d) Biomass

(3) Production Date Requirement

(4) Conventionality of Production Process

d. Estates and Trusts

27. New Energy Efficient Homes Credit

a. In General

b. Credit Amount

c. Eligible Contractor

d. Energy Savings Requirements

(1) Qualified Homes

(2) Homes Achieving Fifty Percent Savings

(3) Homes Achieving Thirty Percent Savings

e. Certification

28. Energy Efficient Appliance Credit

a. In General

b. Credit Amounts

(1) Dishwashers

(2) Clothes Washers

(3) Refrigerators

c. Limitations

(1) Eligible Production

(2) Aggregrate Credit Amount

(3) Gross Receipts Limitation

(4) Verification

d. Special Rules with Respect to Producers

(1) Controlled Corporate Groups

(2) Tax-Exempt Organizations

(3) Estates and Trusts

(4) Regulated Investment Companies and Real Estate Investment Trusts

(5) Farmers’ and Other Cooperatives

29. Alternative Motor Vehicle Credit

a. In General

b. New Qualified Fuel Cell Motor Vehicle Credit

(1) Credit Amount

(2) New Qualified Fuel Cell Motor Vehicle

c. New Advanced Lean Burn Technology Motor Vehicle Credit

(1) Credit Amount

(2) New Advanced Lean Burn Technology Motor Vehicle

d. New Qualified Hybrid Motor Vehicle Credit

(1) Credit Amount

(2) New Qualified Hybrid Motor Vehicle

e. New Qualified Alternative Fuel Motor Vehicle Credit

(1) Credit Amount

(a) In General

(b) Mixed-Fuel Vehicles

(c) Incremental Cost

(2) New Qualified Alternative Fuel Motor Vehicle

(a) In General

(b) Mixed-Fuel Vehicle

f. Plug-In Conversion Credit

g. Special Rules and Limitations

(1) Manufacturing Limitation for Hybrids and Advanced Lean Burn Technology Motor Vehicles

(2) Other Limitations

(3) Credit Expiration

h. IRS Guidance

30. Alternative Fuel Vehicle Refueling Property Credit

a. In General

b. Credit Amount

c. Alternative Fuel Vehicle Refueling Property

d. Converted and Dual-Use Property

(1) Converted Property

(2) Dual-Use Property

e. Limitations and Adjustments

(1) In General

(2) Coordination with General Business Credit

(3) Tax Liability Limitation

(4) Basis Reduction

(5) Recapture of the Credit

(6) Expiration of the Credit

31. Employer Credit for Housing Employees Affected by Hurricane Katrina and Midwestern Storms, Tornadoes, and Flooding

a. In General

b. Definitions

32. Employee Retention Credit for Employers Affected by Hurricanes Katrina, Rita, and Wilma, Kansas Storms and Tornadoes, and Midwestern Storms, Tornadoes, and Flooding

a. In General

b. Eligible Employer

c. Eligible Employee

d. Qualified Wages

33. Mine Rescue Team Training Credit

a. In General

b. Computation of Credit

c. Definitions

34. Agricultural Security Credit

a. In General

b. Limitations

c. Definitions

35. Activated Military Reservist Wage Payment Credit

a. In General

b. Computation of Credit

c. Definitions

36. Carbon Dioxide Sequestration Credit

a. In General

b. Limitations

c. Defintions

37. New Qualified Plug-In Electric Drive Motor Vehicle Credit

a. Introduction

b. 2009 § 30D (Applicable to Vehicles Acquired Before 2010)

(1) In General; Amount of Credit

(2) Limitations

(3) Definitions

c. 2010 § 30D (Applicable to Vehicles Acquired After 2009)

(1) In General; Amount of Credit

(2) Limitations

(3) Definitions

38. Qualified Plug-In Electric Drive Low-Speed Vehicle, Motorcycle, and Three-Wheeled Vehicle Credit

B. Gasoline and Special Fuels Credit

1. In General

2. Computation of Credit

a. In General

b. Farming Use Credit

c. Nonhighway Use Credit

d. Nontaxable Use Credit

C. Clean Renewable Energy Bond Credit

1. In General

2. Computation of Credit

a. In General

b. Limitation

3. Clean Renewable Energy Bond

4. Limitation on Amount of Designated Bonds

5. Application Procedures

D. Qualified Zone Academy Bond Credit for Obligations Issued Before October 4, 2008

1. In General

2. Computation of Credit

a. In General

b. Limitation

3. Definitions

E. Gulf Tax Credit Bond Credit

1. In General

2. Computation of Credit

a. In General

b. Limitations

3. Definitions

4. Application to Midwestern Disaster Area

F. Reciprocal Insurance Company Credit

G. Puerto Rico Economic Activity Credit

H. Puerto Rico and Possession Tax Credit

I. Qualified Tax Credit Bond Credit

1. In General

2. Amount of the Credit

3. Qualified Forestry Conservation Bonds

a. In General

b. Qualified Forestry Conservation Purpose

c. Election to Treat 50% of Bond Allocation as Payment of Tax

d. Allocation Procedures

4. New Clean Renewable Energy Bonds

5. Qualified Energy Conservation Bonds

6. New Qualified Zone Academy Bonds

7. Qualified School Construction Bonds

8. Reporting Requirements

a. Reports Required by Issuer

b. Information Reporting on Credit Allowed to Bondholders

J. Build America Bond Credit

1. In General

2. Build America Bonds

3. Amount of Credit

4. Special Rules

5. Election

6. Refundable Credit Procedures

7. Information Reporting

K. Recovery Zone Bond Credit

1. In General

2. Recovery Zone Economic Development Bonds

3. Recovery Zone Facility Bonds

IV. Credits Allowable Without Regard to Trade, Business, or For-Profit Activity

A. Credits for Withheld Taxes

1. Credit for Income Tax Withheld from Wages

a. In General

b. Timing

2. Credit for Taxes Withheld Under Backup Withholding

a. In General

b. Timing

3. Credit for Income Tax Withheld at Source on Nonresident Aliens and Foreign Corporations

B. Credit for Estimated Taxes Paid

1. In General

2. Trusts and Trust Beneficiaries

3. Estates and Their Beneficiaries

C. Credit for Excess Employment Tax Withholding

1. In General

2. Computation of Credit

3. Timing

4. More Than One Employer

D. Foreign Tax Credit

1. In General

2. Computation of Credit

a. In General

b. Applicable Foreign Taxes Paid or Deemed Paid

(1) In General

(a) Citizens and Domestic Corporations

(b) Residents

(c) Nonresident Aliens and Foreign Corporations

(2) Qualified Taxes

(3) Domestic Corporation's Deemed Paid Foreign Taxes

3. Timing

4. Treatment of Pass-Through and Other Entities

a. Partnerships

b. Estates and Trusts

c. Regulated Investment Companies

d. Tax-Exempt Organizations

e. Domestic Insurance Companies

5. Limitations

a. In General

b. Taxable Income

6. Failure to Provide Information

7. Carrybacks and Carryforwards

8. Individuals Receiving Only Foreign Passive Income

E. Qualified Electric Vehicle Credit for Vehicles Placed in Service Before 2007

1. In General

2. Computation of Credit

a. In General

b. Limitations

(1) Per-Vehicle Limitation

(2) Phase-Out Reduction

(3) Net Regular Tax Limitation

3. Qualified Electric Vehicle

4. Recapture of the Former Qualified Electric Vehicle Credit

a. In General

b. Recapture Event

c. Recapture Amount

F. Credit for Shareholder's Share of Taxes Paid by Regulated Investment Company

G. Prior Year Minimum Tax Credit

1. In General

2. Computation of Credit

a. In General

b. Adjusted Net Minimum Tax

(1) Taxpayers Other Than Corporations

(2) Corporations

3. Limitation

4. Refundable Long-Term Unused Minimum Tax Credit

H. Qualified Plug-In Electric Drive Low-Speed Vehicle, Motorcycle, and Three-Wheeled Vehicle Credit

I. Alternative Motor Vehicle Credit

J. Alternative Fuel Vehicle Refueling Property Credit

K. New Qualified Plug-In Electric Drive Motor Vehicle Credit

V. Special Credits for Individuals

A. Household and Dependent Care Credit

1. In General

2. Qualifying Individuals

a. In General

b. Physical or Mental Incapacity

c. Pre-2005 Rule

(1) In General

(2) Maintenance of Household

(a) In General

(b) Multi-Family Households

(c) Proration of Costs

3. Divorced or Separated Parents

4. Computation of Credit

a. In General

b. Applicable Percentage

5. Employment-Related Expenses

a. In General

b. Employment Related

c. Household Services

d. Care of Qualifying Individual

e. Services Outside Household

f. Exceptions

(1) Overnight Camp Exception

(2) Payments to Related Individuals

6. Limitations

a. Dollar Limitation

b. Earned Income Limitation

(1) In General

(2) Marital Status

(3) Earned Income

(4) Student Spouses and Spouses Incapable of Self-Care

7. Coordination with Medical Expense Deduction

8. Joint Return Requirement

9. Substantiation and Recordkeeping

B. Credit for the Elderly and Disabled

1. In General

2. Qualified Individuals

3. Computation of Credit

a. In General

b. Initial § 22 Amount

(1) In General

(2) Disability Income Limitation

c. Benefits Amount Reduction

d. Excess Adjusted Gross Income Amount Reduction

4. Failure to File Joint Return

C. Earned Income Credit

1. In General

2. Eligible Individuals

a. In General

b. Qualifying Child

(1) In General

(2) Relationship Requirement

(a) Blood Relationship

(b) Eligible Foster Child

(3) Abode Requirement

(4) Age Requirement

(5) Identification Requirement

c. Multiple Potential Eligible Individuals

(1) In General

(2) Modified Adjusted Gross Income

d. Principal Place of Abode

3. Computation of Credit

a. In General

b. Credit Percentage

c. Earned Income Limitation and Maximum Earned Income Credit Amounts

d. Credit Phaseout

(1) In General

(2) Phaseout Percentage

(3) Phaseout Amount

(4) Modified Adjusted Gross Income

e. Earned Income

f. Supplemental Child Credit

4. Limitations on Availability of Credit

a. Failure to File Joint Return

b. Short tax Years

c. Disqualified Investment Income

d. Fraudulent and Improper Claims

(1) Prior Acts of Recklessness or Fraud

(2) Taxpayers Making Improper Claims

e. Delinquent Child Support Payments

5. Treatment of Advance Payment of Earned Income Credit

6. Treatment of Credit for Other Purposes

D. Child Tax Credit

1. In General

2. Computation

a. Basic Credit

b. Income Limitation

c. Limitation Based on Amount of Tax

d. Refundable Portion of Child Tax Credit

3. Qualifying Child

a. In General

b. Dependency Exemption Rules

(1) In General

(2) Relationship Requirement

(a) Blood Relative

(b) Eligible Foster Child

(3) Abode Requirement

(4) Support Requirement

c. Multiple Potential Qualifying Individuals

d. Identification Requirement

e. Divorce and Separation Context

4. Short tax Years

5. Treatment of Credit for Other Purposes

E. Adoption Assistance Credit

1. In General

2. Limitations

a. Dollar Limitation

b. Income Limitation

c. Limitation Based on Amount of Tax

(1) 2000-2009

(2) Post-2009

(3) Effect of Limitation

3. Qualified Adoption Expenses

4. Eligible Child

5. Child with Special Needs

6. Failure to File Joint Return

F. Education Tax Credit

1. In General

2. Hope Scholarship Credit (Including American Opportunity Tax Credit)

3. Lifetime Learning Credit

4. Income Limitation

5. Tax Liability Limitation

6. Identification Requirement

7. Restrictions Based on Taxpayer's Status

a. Failure to File Joint Return

b. Nonresident Alien

8. Recapture

G. Home Mortgage Interest Credit

1. In General

2. Computation of Credit

a. In General

b. Certificate Credit Rate

(1) In General

(2) Consequence of Failure to Satisfy 25% Requirement

c. Certified Indebtedness Amount

3. Limitations

a. Applicable Tax Limit

b. Excess Credit Rate

c. Related Mortgagees

4. Mortgage Credit Certificate

5. Qualified Mortgage Credit Certificate Program

6. Reporting Requirements

H. First-Time D.C. Homebuyer Credit

1. In General

2. Limitations and Definitions

I. Elective Deferrals and IRA Contributions Credit

1. In General

2. Eligible Individuals

3. Computation of Credit

a. In General

b. Applicable Percentage

c. Qualified Retirement Savings Contributions

4. Limitation Based on Amount of Tax

J. Health Insurance Costs Credit

1. In General

2. Eligible Coverage Month

3. Eligible Individuals

4. Qualifying Family Member

5. Qualified Health Insurance

6. Advance Payment of Health Insurance Costs Credit

a. In General

b. Qualified Health Insurance Costs Credit Eligibility Certificate

7. Information Reporting

a. Reporting Requirement

b. Form and Manner of Returns

c. Failure to File Penalties

K. Nonbusiness Energy Property Credit

L. Residential Energy Efficient Property Credit

M. 2008 Recovery Rebate for Individuals

1. In General

2. Eligible Individual

3. Limitations

4. Advance Refund of Credit

5. Examples

N. First-Time Homebuyer Credit

O. Making Work Pay Credit

VI. Limitations and Restrictions on Credits

A. In General

B. Computational Limitations

1. Tax Liability Limitations

a. In General

b. Computation of Tax Liability Limitations

(1) Nonrefundable Personal Credits

(a) In General

(b) Adoption Credit

(c) Child Tax Credit

(d) Home Mortgage Interest Credit

(e) First-Time D.C. Homebuyer Credit

(f) Elective Deferrals and IRA Contributions Credit

(2) Foreign Tax Credit

(3) Pre-2006 Nonconventional Source Fuels Credit

(4) Tax Credits for Certain Alternative or Electric Vehicles or Refueling Property

(a) Qualified Plug-In Electric Drive Low-Speed Vehicles, Motorcycles, and Three-Wheeled Vehicles Acquired After February 17, 2009

(b) Qualified Electric Vehicles Placed in Service Before 2007

(c) Alternative Motor Vehicle Credit

(d) Alternative Fuel Vehicle Refueling Property Credit

(e) New Qualified Plug-In Electric Drive Motor Vehicle Credit

(i) Vehicles Acquired Before 2010

(ii) Vehicles Acquired After 2009

(5) General Business Credits

(a) In General

(b) Specified Credits

(c) Empowerment Zone Employment Credit

(d) New York Liberty Zone Credit

(e) Modification of Excess Net Regular Tax Liability

(i) Married Individuals Filing Separate Returns

(ii) Controlled Groups

(iii) Certain Financial and Investment Organizations

(iv) Estates and Trusts

(f) Allocation of Business Credit Tax Liability Limitation

(6) Clean Renewable Energy Bonds Credit

(7) Tax Credit Bond Credit

c. Carrybacks and Carryforwards

(1) Nonrefundable Personal Credits

(2) Foreign Tax Credit

(3) Nonconventional Source Fuels Credit

(4) Tax Credits for Certain Alternative or Electric Vehicles or Refueling Property

(a) Qualified Plug-In Electric Vehicles, Motorcycles, and Three-Wheeled Vehicles Acquired After February 17, 2009

(b) Qualified Electric Vehicles Placed in Service After June 30, 1993, and Before 2007

(c) Alternative Motor Vehicle Credit

(d) Alternative Fuel Vehicle Refueling Property Credit

(e) New Qualified Plug-In Electric Drive Motor Vehicle Credit

(5) General Business Credits

(a) In General

(b) Carryback Limitation

(c) Carryforward Limitation

(d) Specific Credit Limitations

2. At-Risk Limitations

a. In General

b. Credit Base

c. Applicable Property

(1) In General

(2) Covered Taxpayers

(3) Applicable At-Risk Activity

(a) Enumerated Activities

(b) Other Activities

(c) Separation and Aggregation Rules

(d) Exceptions

(i) Closely Held Corporation Equipment Leasing

(ii) Active Businesses of Qualified C Corporations

d. Nonqualified Nonrecourse Financing

(1) In General

(2) Nonrecourse Financing

(3) Qualified Person

(a) In General

(b) Low-Income Housing Credit At-Risk Limitation

(4) Related Person

e. Application to Partnerships and S Corporations

f. Subsequent Decreases in Nonqualified Nonrecourse Financing

g. Subsequent Increases in Nonqualified Nonrecourse Financing

(1) In General

(2) Qualified Energy Property

3. Passive Loss Limitation

a. In General

b. Covered Taxpayers

c. Passive Activity

(1) In General

(2) Trade or Business and Rental Activities

(3) Activity Groupings

(4) Qualified Rental Real Estate Activity

(5) Oil and Gas Working Interest Exception

(6) Material Participation

(a) In General

(b) Special Situations

(c) Covered Corporations

d. Passive Activity Credits

e. Exceptions

(1) Net Active Income Exception

(2) Rental Real Estate Active Participation Exception

(a) In General

(b) Dollar Limitation

(c) Estates

(d) Active Participation

f. Carryforward of Disallowed Credits

(1) In General

(2) Activity No Longer Passive

(3) Taxpayer No Longer Covered

C. Credits Disallowed Because of Other Tax Benefit

1. Credits Attributable to Excluded Income

a. Credits Attributable to Excluded Compensation

(1) Educational Assistance Exclusion

(2) Dependent Care Assistance Exclusion

b. Credits Attributable to Contribution to Corporate Capital Exclusion

c. Credits Attributable to Excludable Foreign Income

(1) Credits Related to Excluded Foreign Earned Income

(2) Credits Related to Excluded Possessions Income

(3) Credits Related to Excluded Virgin Islands Income

(4) Credits Related to Excluded Puerto Rico Income

(5) Credits Related to Excluded Extraterritorial Income

2. Credits Attributable to Amounts for Which Deductions Allowed

a. Foreign Taxes

b. Qualified Research and Basic Research Expenses

(1) In General

(2) Election

(3) Previous Elections

D. Public Policy Restrictions

1. Deductions Disallowed for Nontax Policy Reasons

a. Judicially Developed Disallowances

(1) In General

(2) Scope of Application of Disallowance

(3) Illegal Business Activities

(a) Illegal Business

(b) Compensation in Furtherance of Illegal Purpose

(c) Illegal Equipment

(4) Racial Discrimination

b. International Boycott Foreign Tax Credit Disallowance

c. Illegal Drug Sale Trade or Business

2. Deductions Disallowed to Prevent Income Tax Avoidance and Evasion

a. Acquisitions Made to Evade or Avoid Income Tax

(1) In General

(2) Tainted Acquisition

(a) In General

(b) Control

(c) Qualified Stock Purchase and Liquidation

(3) Allowance and Allocation of Credit

b. Reallocated Credits

3. Credits Disallowed for Tax Equity Purposes

a. Disallowance of Double Benefits

(1) Interrelationship with Previous Internal Revenue Codes

(2) Interrelationship with Deductions

(a) Deduction for Cost of Eligible Personalty

(b) Deduction for Dividends Received from Foreign Corporation

(3) Trust Accumulation Distributions

(4) Interrelationship with Railroad Rolling Stock Source Rules

b. Discriminatory Taxation of U.S. Persons

(1) In General

(2) Subjects of a Foreign Country

(3) U.S. Persons

(4) Discriminatory Taxation

(5) Exercise of Power

4. Credits Disallowed as Condition for Tax Benefit

a. High Speed Intercity Rail Facility Qualification

b. Deductions

E. Disallowance for Lack of Substantiation

VII. Taxpayer Entitled to Credit

A. Introduction

B. Nonstatutory Principles

1. In General

2. Constructive Credits

a. In General

b. Agency

c. Reimbursement

d. Sham Entities

3. Ownership Requirement for Investment Credit

a. In General

b. Determination of Ownership

C. Statutory Provisions Relating to Assignment of Credits

1. Related Party Reallocation

a. IRS Reallocation of Credits Among Related Parties

b. IRS Reallocation of Credits of Personal Service Corporations

c. IRS Reallocation of Reinsurance Agreement Credits

2. Corporate Transactions

a. Credits Transferable in Certain Corporate Acquisitions

(1) In General

(2) Qualified Acquisition

(3) Specified Credits

b. Limitation on Transfer of Credits Following Ownership Change

(1) In General

(2) Affected Corporations and Credits

(3) Limitation Amount

(4) Ownership Change

c. Limitation on Use of Preacquisition Losses

(1) In General

(2) Scope of Limitation

(3) Affected Credits

d. Qualified Subsidiary of Tax-Exempt Real Property Entity

(1) In General

(2) Qualified Subsidiary

(3) Tax-Exempt Real Property Entity

(4) Qualified Organization

e. Qualified Real Estate Investment Trust Subsidiaries

3. Trusts and Estates

a. In General

b. Estates and Non-Grantor Trusts

c. Credits of Grantor Trusts

(1) In General

(2) Conditions Under Which Grantor Trust Rules Applied

4. Entities and Members

a. Partnerships

(1) In General

(2) Substantial Economic Effect

(3) Family and Other Partnerships

(a) In General

(b) Recognition as Partner

(c) Allocation of Credits

(d) Purchase of Partnership Interest by Family Members

(4) Varying Interests Allocations

b. S Corporations

(1) Shareholders in Family Group

(2) Separate Statement of Gasoline and Special Fuels Credit

5. Lessors and Lessees

a. Investment Credit Sales and Leasebacks

b. Lessor Pass-Through of Investment Credit to Lessee

(1) In General

(2) Restrictions

(3) Full Pass-Through

(4) Partial Pass-Through

(5) Election

 


WORKING PAPERS

Working Papers

Finding Aid

Relevant Worksheets Appearing in Other Portfolios:

Other Resources

Worksheet 1 Exemption Procedures of § 505(i) of the Federal Food, Drug and Cosmetic Act: 21 USC § 355(i), 21 CFR § § 312.1 through 312.10 (Part 312, subpart A)

Worksheet 2 Section 43 Enhanced Oil Recovery Credit Inflation Adjustment Factors and Reference Prices

Worksheet 3 Section 45 Renewable Electricity Production Credit Inflation Adjustment Factors, Reference Prices, and Credit Amounts

Worksheet 4 Section 45K Nonconventional Source Fuel Credit Inflation Adjustment Factors, Reference Prices, and Credit Amounts

Worksheet 5 [Reserved]

Worksheet 6 Lower Living Standard Income Levels

Worksheet 7 Table of Tax Credit Elections

Worksheet 8 List of Vehicles Certified as § 30B Qualified Hybrid Motor Vehicles

Bibliography

OFFICIAL

Statutes:

State:

Public Laws:

United States Code:

Regulations:

Legislative History:

Treasury Rulings and Procedures:

Cases:

UNOFFICIAL

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