Title 26 — Internal Revenue Code
Part IV · Chapter 1 — Normal Taxes and Surtaxes
§ 1239. Gain from sale of depreciable property between certain related taxpayers
Statutory text
Treatment of gain as ordinary income
In the case of a sale or exchange of property, directly or indirectly, between related persons, any gain recognized to the transferor shall be treated as ordinary income if such property is, in the hands of the transferee, of a character which is subject to the allowance for depreciation provided in section 167.
Related persons
For purposes of subsection (a), the term “related persons” means—
a person and all entities which are controlled entities with respect to such person,
a taxpayer and any trust in which such taxpayer (or his spouse) is a beneficiary, unless such beneficiary’s interest in the trust is a remote contingent interest (within the meaning of section 318(a)(3)(B)(i)), and
except in the case of a sale or exchange in satisfaction of a pecuniary bequest, an executor of an estate and a beneficiary of such estate.
Controlled entity defined
General rule
For purposes of this section, the term “controlled entity” means, with respect to any person—
a corporation more than 50 percent of the value of the outstanding stock of which is owned (directly or indirectly) by or for such person,
a partnership more than 50 percent of the capital interest or profits interest in which is owned (directly or indirectly) by or for such person, and
any entity which is a related person to such person under paragraph (3), (10), (11), or (12) of section 267(b).
Constructive ownership
For purposes of this section, ownership shall be determined in accordance with rules similar to the rules under section 267(c) (other than paragraph (3) thereof).
Employer and related employee association
For purposes of subsection (a), the term “related person” also includes—
an employer and any person related to the employer (within the meaning of subsection (b)), and
a welfare benefit fund (within the meaning of section 419(e)) which is controlled directly or indirectly by persons referred to in paragraph (1).
Patent applications treated as depreciable property
For purposes of this section, a patent application shall be treated as property which, in the hands of the transferee, is of a character which is subject to the allowance for depreciation provided in section 167.
Legislative history
Reconstructed from this section’s Code source credit and amendment notes, resolved against the local Statutes at Large. Editorial notes are evidence, not the law that made the change.
Aug. 16, 1954, ch. 736, 68A Stat. 332 · 68A Stat. 332
Enacted · 26 U.S.C. § 1239
Aug. 16, 1954, ch. 736, 68A Stat. 332
Source evidence
Code source credit
Aug. 16, 1954, ch. 736, 68A Stat. 332Technical Amendments Act of 1958
Pub. L. 85–866 title I § 56 · 72 Stat. 1606
Added · 26 U.S.C. § 1239(c)
Pub. L. 85–866 added subsec. (c)
Source evidence
Code amendment note
Subsec. (c). Pub. L. 85–866 added subsec. (c).Enacted provision · exact public law section
SEC. 56. GAIN FROM SALE OF CERTAIN PROPERTY BETWEEN SPOUSES, ETC. Section 1239 (relating to gain from sale of certain property between 26 USC 1239. spouses or between an individual and a controlled corporation) is amended by adding at the end thereof the following new subsection: “(c) Section Not Applicable With Respect to Sales or Exchanges Made on or Before May 3, 1951.— This section shall apply only in the case of a sale or exchange made after May 3, 1951.”Pub. L. 94–455 title XXI § 2129(a) · 90 Stat. 1520
Substituted · 26 U.S.C. § 1239
Pub. L. 94–455 substituted “sale of depreciable property between certain related taxpayers” for “sale of certain property between spouses or between an individual and a controlled corporation” in section catchline
Source evidence
Code amendment note
Pub. L. 94–455 substituted “sale of depreciable property between certain related taxpayers” for “sale of certain property between spouses or between an individual and a controlled corporation” in section catchline.Enacted provision · exact public law section
(a) In General.— Section 1239 (relating to gain from sale of certain property between spouses or between an individual and a controlled corporation) is amended to read as follows: “SEC. 1239. GAIN FROM SALE OF DEPRECIABLE PROPERTY BETWEEN CERTAIN RELATED TAXPAYERS. “(a) Treatment of Gain as Ordinary Income.— In the case of a sale or exchange of property, directly or indirectly, between related persons, any gain recognized to the transferor shall be treated as ordinary income if such property is, in the hands of the transferee, subject to the allowance for depreciation provided in section 167, “(b) Related Persons.— For purposes of subsection (a), the term ‘related persons’ means— “(1) a husband and wife, “(2) an individual and a corporation 80 percent or more in value of the outstanding stock of which is owned, directly or indirectly, by or for such individual, or “(3) two or more corporations 80 percent or more in value of the outstanding stock of each of which is owned, directly or indirectly, by or for the same individual. “(c) Constructive Ownership of Stock.— Section 318 shall apply in determining the ownership of stock for purposes of this section, except that sections 318(a)(2)(C) and 318(a)(3)(C) shall be applied without regard to the 50-percent limitation contained therein.”Pub. L. 94–455 title XXI § 2129(a) · 90 Stat. 1520
Substituted · 26 U.S.C. § 1239(a)
Pub. L. 94–455 substituted provisions for transactions between related persons for such transactions (1) between a husband and wife; or (2) between an individual and a corporation more than 80 percent in value of the outstanding stock of which is owned by such individual, his spouse, and his minor children and minor grandchildren and “any gain recognized to the transferee shall be treated as ordinary income if such property is, in the hands of the transferee, subject to the allowance for depreciation provided in section 167” for “any gain recognized to the transferor from the sale or exchange of such property shall be considered as gain from the sale or exchange of property which is neither a capital asset nor property described in section 1231”
Source evidence
Code amendment note
Subsec. (a). Pub. L. 94–455 substituted provisions for transactions between related persons for such transactions (1) between a husband and wife; or (2) between an individual and a corporation more than 80 percent in value of the outstanding stock of which is owned by such individual, his spouse, and his minor children and minor grandchildren and “any gain recognized to the transferee shall be treated as ordinary income if such property is, in the hands of the transferee, subject to the allowance for depreciation provided in section 167” for “any gain recognized to the transferor from the sale or exchange of such property shall be considered as gain from the sale or exchange of property which is neither a capital asset nor property described in section 1231”.Enacted provision · exact public law section
(a) In General.— Section 1239 (relating to gain from sale of certain property between spouses or between an individual and a controlled corporation) is amended to read as follows: “SEC. 1239. GAIN FROM SALE OF DEPRECIABLE PROPERTY BETWEEN CERTAIN RELATED TAXPAYERS. “(a) Treatment of Gain as Ordinary Income.— In the case of a sale or exchange of property, directly or indirectly, between related persons, any gain recognized to the transferor shall be treated as ordinary income if such property is, in the hands of the transferee, subject to the allowance for depreciation provided in section 167, “(b) Related Persons.— For purposes of subsection (a), the term ‘related persons’ means— “(1) a husband and wife, “(2) an individual and a corporation 80 percent or more in value of the outstanding stock of which is owned, directly or indirectly, by or for such individual, or “(3) two or more corporations 80 percent or more in value of the outstanding stock of each of which is owned, directly or indirectly, by or for the same individual. “(c) Constructive Ownership of Stock.— Section 318 shall apply in determining the ownership of stock for purposes of this section, except that sections 318(a)(2)(C) and 318(a)(3)(C) shall be applied without regard to the 50-percent limitation contained therein.”Pub. L. 94–455 title XXI § 2129(a) · 90 Stat. 1520
Substituted · 26 U.S.C. § 1239(b)
Pub. L. 94–455 substituted definition of “related persons” for prior provision making section applicable only to sales or exchanges of depreciable property
Source evidence
Code amendment note
Subsec. (b). Pub. L. 94–455 substituted definition of “related persons” for prior provision making section applicable only to sales or exchanges of depreciable property.Enacted provision · exact public law section
(a) In General.— Section 1239 (relating to gain from sale of certain property between spouses or between an individual and a controlled corporation) is amended to read as follows: “SEC. 1239. GAIN FROM SALE OF DEPRECIABLE PROPERTY BETWEEN CERTAIN RELATED TAXPAYERS. “(a) Treatment of Gain as Ordinary Income.— In the case of a sale or exchange of property, directly or indirectly, between related persons, any gain recognized to the transferor shall be treated as ordinary income if such property is, in the hands of the transferee, subject to the allowance for depreciation provided in section 167, “(b) Related Persons.— For purposes of subsection (a), the term ‘related persons’ means— “(1) a husband and wife, “(2) an individual and a corporation 80 percent or more in value of the outstanding stock of which is owned, directly or indirectly, by or for such individual, or “(3) two or more corporations 80 percent or more in value of the outstanding stock of each of which is owned, directly or indirectly, by or for the same individual. “(c) Constructive Ownership of Stock.— Section 318 shall apply in determining the ownership of stock for purposes of this section, except that sections 318(a)(2)(C) and 318(a)(3)(C) shall be applied without regard to the 50-percent limitation contained therein.”Pub. L. 94–455 title XXI § 2129(a) · 90 Stat. 1520
Substituted · 26 U.S.C. § 1239(c)
Pub. L. 94–455 substituted provision respecting constructive ownership of stock for prior provision making section inapplicable with respect to sales or exchanges made on or before May 3, 1951
Source evidence
Code amendment note
Subsec. (c). Pub. L. 94–455 substituted provision respecting constructive ownership of stock for prior provision making section inapplicable with respect to sales or exchanges made on or before May 3, 1951.Enacted provision · exact public law section
(a) In General.— Section 1239 (relating to gain from sale of certain property between spouses or between an individual and a controlled corporation) is amended to read as follows: “SEC. 1239. GAIN FROM SALE OF DEPRECIABLE PROPERTY BETWEEN CERTAIN RELATED TAXPAYERS. “(a) Treatment of Gain as Ordinary Income.— In the case of a sale or exchange of property, directly or indirectly, between related persons, any gain recognized to the transferor shall be treated as ordinary income if such property is, in the hands of the transferee, subject to the allowance for depreciation provided in section 167, “(b) Related Persons.— For purposes of subsection (a), the term ‘related persons’ means— “(1) a husband and wife, “(2) an individual and a corporation 80 percent or more in value of the outstanding stock of which is owned, directly or indirectly, by or for such individual, or “(3) two or more corporations 80 percent or more in value of the outstanding stock of each of which is owned, directly or indirectly, by or for the same individual. “(c) Constructive Ownership of Stock.— Section 318 shall apply in determining the ownership of stock for purposes of this section, except that sections 318(a)(2)(C) and 318(a)(3)(C) shall be applied without regard to the 50-percent limitation contained therein.”Pub. L. 95–600 title VII § 701(v)(1) · 92 Stat. 2763
Substituted · 26 U.S.C. § 1239(a)
Pub. L. 95–600 substituted “of a character which is subject to the allowance for depreciation provided in section 167” for “subject to the allowance for depreciation provided in section 167”
Source evidence
Code amendment note
Subsec. (a). Pub. L. 95–600 substituted “of a character which is subject to the allowance for depreciation provided in section 167” for “subject to the allowance for depreciation provided in section 167”.Enacted provision · exact public law section
(1) 26 USC 1239. In general.— Subsection (a) of section 1239 (relating to gain from sale of depreciable property between certain related tax-payers) is amended by striking out “subject to the allowance for depreciation provided in section 167” and inserting in lieu thereof “of a character which is subject to the allowance for 26 USC 167. 26 USC 1239 note. 26 USC 1239. depreciation provided in section 167”.Pub. L. 96–471 § 5 · 94 Stat. 2247
Substituted · 26 U.S.C. § 1239(b)(1)
Pub. L. 96–471 substituted “the taxpayer and the taxpayer’s spouse” for “a husband and wife”
Source evidence
Code amendment note
Subsec. (b)(1). Pub. L. 96–471 substituted “the taxpayer and the taxpayer’s spouse” for “a husband and wife”.Enacted provision · exact public law section
SEC. 5. COORDINATION WITH SECTION 1239. Subsections (b) and (c) of section 1239 (defining related persons) are amended to read as follows: “(b) Related Persons.— For purposes of subsection (a), the term ‘related persons’ means— “(1) the taxpayer and the taxpayer’s spouse, “(2) the taxpayer and an 80-percent owned entity, or “(3) two 80-percent owned entities. “(c) 80-Percent Owned Entity Defined.— “(1) General rule.— For purposes of this section, the term ‘80-percent owned entity’ means— “(A) a corporation 80 percent or more in value of the outstanding stock of which is owned (directly or indirectly) by or for the taxpayer, and “(B) a partnership 80 percent or more of the capital interest or profits interest in which is owned (directly or indirectly) by or for the taxpayer. “(2) Constructive ownership.— For purposes of subparagraphs (A) and (B) of paragraph (1), the principles of section 318 26 USC 318. shall apply, except that— “(A) the members of an individual’s family shall consist only of such individual and such individual’s spouse, and “(B) paragraphs (2)(C) and (3)(C) of section 318(a) shall be applied without regard to the 50-percent limitation contained therein.”.Pub. L. 96–471 § 5 · 94 Stat. 2247
Substituted · 26 U.S.C. § 1239(b)(2)
Pub. L. 96–471 substituted “the taxpayer and an 80-percent owned entity, or” for “an individual and a corporation 80 percent or more in value of the outstanding stock of which is owned, directly or indirectly, by or for such individual, or”
Source evidence
Code amendment note
Subsec. (b)(2). Pub. L. 96–471 substituted “the taxpayer and an 80-percent owned entity, or” for “an individual and a corporation 80 percent or more in value of the outstanding stock of which is owned, directly or indirectly, by or for such individual, or”.Enacted provision · exact public law section
SEC. 5. COORDINATION WITH SECTION 1239. Subsections (b) and (c) of section 1239 (defining related persons) are amended to read as follows: “(b) Related Persons.— For purposes of subsection (a), the term ‘related persons’ means— “(1) the taxpayer and the taxpayer’s spouse, “(2) the taxpayer and an 80-percent owned entity, or “(3) two 80-percent owned entities. “(c) 80-Percent Owned Entity Defined.— “(1) General rule.— For purposes of this section, the term ‘80-percent owned entity’ means— “(A) a corporation 80 percent or more in value of the outstanding stock of which is owned (directly or indirectly) by or for the taxpayer, and “(B) a partnership 80 percent or more of the capital interest or profits interest in which is owned (directly or indirectly) by or for the taxpayer. “(2) Constructive ownership.— For purposes of subparagraphs (A) and (B) of paragraph (1), the principles of section 318 26 USC 318. shall apply, except that— “(A) the members of an individual’s family shall consist only of such individual and such individual’s spouse, and “(B) paragraphs (2)(C) and (3)(C) of section 318(a) shall be applied without regard to the 50-percent limitation contained therein.”.Pub. L. 96–471 § 5 · 94 Stat. 2247
Substituted · 26 U.S.C. § 1239(b)(3)
Pub. L. 96–471 substituted “two 80-percent owned entities” for “two or more corporations 80 percent or more in value of the outstanding stock of each of which is owned, directly or indirectly, by or for the same individual”
Source evidence
Code amendment note
Subsec. (b)(3). Pub. L. 96–471 substituted “two 80-percent owned entities” for “two or more corporations 80 percent or more in value of the outstanding stock of each of which is owned, directly or indirectly, by or for the same individual”.Enacted provision · exact public law section
SEC. 5. COORDINATION WITH SECTION 1239. Subsections (b) and (c) of section 1239 (defining related persons) are amended to read as follows: “(b) Related Persons.— For purposes of subsection (a), the term ‘related persons’ means— “(1) the taxpayer and the taxpayer’s spouse, “(2) the taxpayer and an 80-percent owned entity, or “(3) two 80-percent owned entities. “(c) 80-Percent Owned Entity Defined.— “(1) General rule.— For purposes of this section, the term ‘80-percent owned entity’ means— “(A) a corporation 80 percent or more in value of the outstanding stock of which is owned (directly or indirectly) by or for the taxpayer, and “(B) a partnership 80 percent or more of the capital interest or profits interest in which is owned (directly or indirectly) by or for the taxpayer. “(2) Constructive ownership.— For purposes of subparagraphs (A) and (B) of paragraph (1), the principles of section 318 26 USC 318. shall apply, except that— “(A) the members of an individual’s family shall consist only of such individual and such individual’s spouse, and “(B) paragraphs (2)(C) and (3)(C) of section 318(a) shall be applied without regard to the 50-percent limitation contained therein.”.Pub. L. 96–471 § 5 · 94 Stat. 2247
Substituted · 26 U.S.C. § 1239(c)
Pub. L. 96–471 substituted provisions defining an “80-percent owned entity” for provisions relating to constructive ownership of stock
Source evidence
Code amendment note
Subsec. (c). Pub. L. 96–471 substituted provisions defining an “80-percent owned entity” for provisions relating to constructive ownership of stock.Enacted provision · exact public law section
SEC. 5. COORDINATION WITH SECTION 1239. Subsections (b) and (c) of section 1239 (defining related persons) are amended to read as follows: “(b) Related Persons.— For purposes of subsection (a), the term ‘related persons’ means— “(1) the taxpayer and the taxpayer’s spouse, “(2) the taxpayer and an 80-percent owned entity, or “(3) two 80-percent owned entities. “(c) 80-Percent Owned Entity Defined.— “(1) General rule.— For purposes of this section, the term ‘80-percent owned entity’ means— “(A) a corporation 80 percent or more in value of the outstanding stock of which is owned (directly or indirectly) by or for the taxpayer, and “(B) a partnership 80 percent or more of the capital interest or profits interest in which is owned (directly or indirectly) by or for the taxpayer. “(2) Constructive ownership.— For purposes of subparagraphs (A) and (B) of paragraph (1), the principles of section 318 26 USC 318. shall apply, except that— “(A) the members of an individual’s family shall consist only of such individual and such individual’s spouse, and “(B) paragraphs (2)(C) and (3)(C) of section 318(a) shall be applied without regard to the 50-percent limitation contained therein.”.Pub. L. 97–448 § 301(a) · 96 Stat. 2365
Substituted · 26 U.S.C. § 1239(b)
Pub. L. 97–448, § 301(a), substituted provisions that “related persons” means (1) a husband and wife, and (2) a person and all entities which are 80-percent owned entities with respect to such person, for provisions which provided that “related persons” meant (1) the taxpayer and the taxpayer’s spouse, (2) the taxpayer and an 80-percent owned entity, or (3) two 80-percent owned entities
Source evidence
Code amendment note
Subsec. (b). Pub. L. 97–448, § 301(a), substituted provisions that “related persons” means (1) a husband and wife, and (2) a person and all entities which are 80-percent owned entities with respect to such person, for provisions which provided that “related persons” meant (1) the taxpayer and the taxpayer’s spouse, (2) the taxpayer and an 80-percent owned entity, or (3) two 80-percent owned entities.Enacted provision · exact public law section
(a) Definition of Related Persons.— Subsection (b) of section 1239 (defining related persons) is amended to read as follows: 26 USC 1239. “(b) Related Persons.— For purposes of subsection (a), the term ‘related persons’ means— “(1) a husband and wife, and “(2) a person and all entities which are 80-percent owned entities with respect to such person.”Pub. L. 97–448 § 301(b) · 96 Stat. 2365
Inserted · 26 U.S.C. § 1239(c)(1)
Pub. L. 97–448, § 301(b), inserted “, with respect to any person” after “means” in introductory provisions
Substituted · 26 U.S.C. § 1239(c)(1)
Pub. L. 97–448, § 301(b), substituted “such person” for “the taxpayer” in subpars. (A) and (B)
Source evidence
Code amendment note
Subsec. (c)(1). Pub. L. 97–448, § 301(b), inserted “, with respect to any person” after “means” in introductory provisions and substituted “such person” for “the taxpayer” in subpars. (A) and (B).Enacted provision · exact public law section
(b) 80-Percent Owned Entity Defined.— Subsection (c) of section 26 USC 1239. 1239 (defining 80-percent owned entity) is amended to read as follows: “(c) 80-Percent Owned Entity Defined.— “(1) General rule.— For purposes of this section, the term ‘80-percent owned entity’ means, with respect to any person— “(A) a corporation 80 percent or more in value of the outstanding stock of which is owned (directly or indirectly) by or for such person, and “(B) a partnership 80 percent or more of the capital interest or profits interest in which is owned (directly or indirectly) by or for such person. “(2) Constructive ownership.— For purposes of subparagraphs (A) and (B) of paragraph (1), the principles of section 318 shall apply, except that— “(A) the members of an individual’s family shall consist only of such individual and such individual’s spouse, “(B) paragraph (2)(C) of section 318(a) shall be applied without regard to the 50-percent limitation contained therein, and “(C) paragraph (3) of section 318(a) shall not apply.”Pub. L. 97–448 § 301(b) · 96 Stat. 2365
Struck · 26 U.S.C. § 1239(c)(2)
Pub. L. 97–448, § 301(b), struck out “and” at end of subpar. (A)
Substituted · 26 U.S.C. § 1239(c)(2)
Pub. L. 97–448, § 301(b), substituted “paragraph (2)(C)” for “paragraphs (2)(C) and (3)(C)” in subpar. (B)
Added · 26 U.S.C. § 1239(c)(2)
Pub. L. 97–448, § 301(b), added subpar. (C)
Source evidence
Code amendment note
Subsec. (c)(2). Pub. L. 97–448, § 301(b), struck out “and” at end of subpar. (A), substituted “paragraph (2)(C)” for “paragraphs (2)(C) and (3)(C)” in subpar. (B), and added subpar. (C).Enacted provision · exact public law section
(b) 80-Percent Owned Entity Defined.— Subsection (c) of section 26 USC 1239. 1239 (defining 80-percent owned entity) is amended to read as follows: “(c) 80-Percent Owned Entity Defined.— “(1) General rule.— For purposes of this section, the term ‘80-percent owned entity’ means, with respect to any person— “(A) a corporation 80 percent or more in value of the outstanding stock of which is owned (directly or indirectly) by or for such person, and “(B) a partnership 80 percent or more of the capital interest or profits interest in which is owned (directly or indirectly) by or for such person. “(2) Constructive ownership.— For purposes of subparagraphs (A) and (B) of paragraph (1), the principles of section 318 shall apply, except that— “(A) the members of an individual’s family shall consist only of such individual and such individual’s spouse, “(B) paragraph (2)(C) of section 318(a) shall be applied without regard to the 50-percent limitation contained therein, and “(C) paragraph (3) of section 318(a) shall not apply.”Tax Reform Act of 1984
Pub. L. 98–369 § 421(b)(6) · 98 Stat. 494
Redesignated · 26 U.S.C. § 1239(b)
Pub. L. 98–369, § 421(b)(6), redesignated pars. (2) and (3) as (1) and (2), respectively. Former par. (1), defining a husband and wife as “related persons”, was struck out
Source evidence
Code amendment note
Subsec. (b). Pub. L. 98–369, § 421(b)(6), redesignated pars. (2) and (3) as (1) and (2), respectively. Former par. (1), defining a husband and wife as “related persons”, was struck out.Enacted provision · exact public law section
(6) Coordination with section 1239.— (A) Subsection (b) of section 1239, as amended by this Act, is amended by striking out paragraph (1) and by redesignating paragraphs (2) and (3) as paragraphs (1) and (2), respectively. (B) Subparagraph (C) of section 453(h)(1) (relating to special rule where obligor and shareholder are related persons) is amended by striking out “the obligor of any installment obligation and the shareholder are related persons” and inserting in lieu thereof “the obligor of any installment obligation and the shareholder are married to each other or are related persons”. (C) The subsection heading for section 453(g) is amended by striking out “Spouse or”.Tax Reform Act of 1984
Pub. L. 98–369 § 175(b) · 98 Stat. 494
Amended · 26 U.S.C. § 1239(b)
Pub. L. 98–369, § 175(b), amended subsec. (b) generally
Added · 26 U.S.C. § 1239(b)
Pub. L. 98–369, § 175(b), adding par. (3)
Target inherited from the preceding amendment note.
Source evidence
Code amendment note
Pub. L. 98–369, § 175(b), amended subsec. (b) generally, adding par. (3).Enacted provision · exact public law section
(b) Taxpayer and Certain Trusts Treated as Related Persons.— Subsection (b) of section 1239 is amended to read as follows: “(b) Related Persons.— For purposes of subsection (a), the term ‘related persons’ means— “(1) a husband and wife, “(2) a person and all entities which are 80-percent owned entities with respect to such person, “(3) a taxpayer and any trust in which such taxpayer (or his spouse) is a beneficiary, unless such beneficiary’s interest in the trust is a remote contingent interest (within the meaning of section 318(a)(3)(B)(i)).”Tax Reform Act of 1984
Pub. L. 98–369 § 557(a) · 98 Stat. 494
Added · 26 U.S.C. § 1239(d)
Pub. L. 98–369, § 557(a), added subsec. (d)
Source evidence
Code amendment note
Subsec. (d). Pub. L. 98–369, § 557(a), added subsec. (d).Enacted provision · exact public law section
(a) General Rule.— Section 1239 (relating to gain from sale of depreciable property between certain related taxpayers) is amended by adding at the end thereof the following new subsection: “(d) Employer and Related Employee Association.— For purposes of subsection (a), the term ‘related person’ also includes— “(1) an employer and any person related to the employer (within the meaning of subsection (b)), and “(2) a welfare benefit fund (within the meaning of section Ante, p. 854. 419(e)) which is controlled directly or indirectly by persons referred to in paragraph (1).”Tax Reform Act of 1984
Pub. L. 98–369 § 175(a) · 98 Stat. 494
Added · 26 U.S.C. § 1239(e)
Pub. L. 98–369, § 175(a), added subsec. (e)
Source evidence
Code amendment note
Subsec. (e). Pub. L. 98–369, § 175(a), added subsec. (e).Enacted provision · exact public law section
(a) Patent Applications Treated as Depreciable Property.— Post, p. 898. Section 1239 (relating to gain from sale of depreciable property between certain related taxpayers) is amended by adding at the end thereof the following new subsection: “(e) Patent Applications Treated as Depreciable Property.— For purposes of this section, a patent application shall be treated as property which, in the hands of the transferee, is of a character which is subject to the allowance for depreciation provided in section 167.”Tax Reform Act of 1986
Pub. L. 99–514 § 642(a)(1)(A) · 100 Stat. 2085
Substituted · 26 U.S.C. § 1239(b)(1)
Pub. L. 99–514, § 642(a)(1)(A), substituted “controlled entities” for “80-percent owned entities”
Source evidence
Code amendment note
Subsec. (b)(1). Pub. L. 99–514, § 642(a)(1)(A), substituted “controlled entities” for “80-percent owned entities”.Enacted provision · exact public law section
(A) In general.— Paragraph (1) of section 1239(b) (defining related persons) is amended by striking out “80-percent owned entities” and inserting in lieu thereof “controlled entities”.Tax Reform Act of 1986
Pub. L. 99–514 § 642(a)(1)(B) · 100 Stat. 2085
Substituted · 26 U.S.C. § 1239(c)
Pub. L. 99–514, § 642(a)(1)(B), (C), in heading, substituted “Controlled entity” for “80-percent owned entity”, in par. (1), in introductory provisions
Substituted · 26 U.S.C. § 1239(c)
Pub. L. 99–514, § 642(a)(1)(B), (C), in heading, substituted “controlled entity” for “80-percent owned entity”, in subpar. (A)
Substituted · 26 U.S.C. § 1239(c)
Pub. L. 99–514, § 642(a)(1)(B), (C), in heading, substituted “more than 50 percent of the value” for “80 percent or more in value”, in subpar. (B)
Substituted · 26 U.S.C. § 1239(c)
Pub. L. 99–514, § 642(a)(1)(B), (C), in heading, substituted “more than 50 percent” for “80 percent or more”
Added · 26 U.S.C. § 1239(c)
Pub. L. 99–514, § 642(a)(1)(B), (C), in heading, added subpar. (C)
Amended · 26 U.S.C. § 1239(c)
Pub. L. 99–514, § 642(a)(1)(B), (C), in heading, amended par. (2) generally. Prior to amendment, par. (2) read as follows: “For purposes of subparagraphs (A) and (B) of paragraph (1), the principles of section 318 shall apply, except that—
Source evidence
Code amendment note
Subsec. (c). Pub. L. 99–514, § 642(a)(1)(B), (C), in heading, substituted “Controlled entity” for “80-percent owned entity”, in par. (1), in introductory provisions, substituted “controlled entity” for “80-percent owned entity”, in subpar. (A), substituted “more than 50 percent of the value” for “80 percent or more in value”, in subpar. (B), substituted “more than 50 percent” for “80 percent or more”, and added subpar. (C), and amended par. (2) generally. Prior to amendment, par. (2) read as follows: “For purposes of subparagraphs (A) and (B) of paragraph (1), the principles of section 318 shall apply, except that—“(A) the members of an individual’s family shall consist only of such individual and such individual’s spouse, “(B) paragraph (2)(C) of section 318(a) shall be applied without regard to the 50-percent limitation contained therein, and “(C) paragraph (3) of section 318(a) shall not apply.”
Enacted provision · exact public law section
(B) Controlled entity defined.— (i) In general.— Section 1239(c)(1) (defining 80-percent owned entity) is amended— (I) by striking out “80-percent owned entity” and inserting in lieu thereof “controlled entity”, (II) by striking out “80 percent or more in value” in subparagraph (A) and inserting in lieu thereof “more than 50 percent of the value”, (III) by striking out “80 percent or more” in subparagraph (B) and inserting in lieu thereof “more than 50 percent”, and (IV) by striking out “and” at the end of subparagraph (A), by striking out the period at the end of subparagraph (B) and inserting “, and”, and by adding at the end thereof the following new paragraph: “(C) any entity which is a related person to such person under paragraph (3), (10), (11), or (12) of section 267(b).” (ii) Conforming amendment.— Section 1239(c) is amended by striking out “80-Percent Owned Entity” in the heading thereof and inserting in lieu thereof “Controlled Entity”,Pub. L. 105–34 title XIII § 1308(b) · 111 Stat. 788
Added · 26 U.S.C. § 1239(b)(3)
Pub. L. 105–34 added par. (3)
Source evidence
Code amendment note
Subsec. (b)(3). Pub. L. 105–34 added par. (3).Enacted provision · exact public law section
(b) Ordinary Income From Gain From Sale of Depreciable Property.— Subsection (b) of section 1239 is amended by striking the period at the end of paragraph (2) and inserting “, and” and by adding at the end the following new paragraph: except in the case of a sale or exchange in satisfaction of a pecuniary bequest, an executor of an estate and a beneficiary of such estate.”.Effective date note
Amendment by Pub. L. 105–34 applicable to taxable years beginning after Aug. 5, 1997, see section 1308(c) of Pub. L. 105–34, set out as a note under section 267 of this title.
29 of 30 references resolved to an enrolled provision · 1 partial
Editorial Notes
Amendments1958–1997 · 8 rounds
1997
Subsec. (b)(3). Pub. L. 105–34 added par. (3).
1986
Subsec. (b)(1). Pub. L. 99–514, § 642(a)(1)(A), substituted “controlled entities” for “80-percent owned entities”.
Subsec. (c). Pub. L. 99–514, § 642(a)(1)(B), (C), in heading, substituted “Controlled entity” for “80-percent owned entity”, in par. (1), in introductory provisions, substituted “controlled entity” for “80-percent owned entity”, in subpar. (A), substituted “more than 50 percent of the value” for “80 percent or more in value”, in subpar. (B), substituted “more than 50 percent” for “80 percent or more”, and added subpar. (C), and amended par. (2) generally. Prior to amendment, par. (2) read as follows: “For purposes of subparagraphs (A) and (B) of paragraph (1), the principles of section 318 shall apply, except that—
“(A) the members of an individual’s family shall consist only of such individual and such individual’s spouse,
“(B) paragraph (2)(C) of section 318(a) shall be applied without regard to the 50-percent limitation contained therein, and
“(C) paragraph (3) of section 318(a) shall not apply.”
1984
Subsec. (b). Pub. L. 98–369, § 421(b)(6), redesignated pars. (2) and (3) as (1) and (2), respectively. Former par. (1), defining a husband and wife as “related persons”, was struck out.
Pub. L. 98–369, § 175(b), amended subsec. (b) generally, adding par. (3).
Subsec. (d). Pub. L. 98–369, § 557(a), added subsec. (d).
Subsec. (e). Pub. L. 98–369, § 175(a), added subsec. (e).
1983
Subsec. (b). Pub. L. 97–448, § 301(a), substituted provisions that “related persons” means (1) a husband and wife, and (2) a person and all entities which are 80-percent owned entities with respect to such person, for provisions which provided that “related persons” meant (1) the taxpayer and the taxpayer’s spouse, (2) the taxpayer and an 80-percent owned entity, or (3) two 80-percent owned entities.
Subsec. (c)(1). Pub. L. 97–448, § 301(b), inserted “, with respect to any person” after “means” in introductory provisions and substituted “such person” for “the taxpayer” in subpars. (A) and (B).
Subsec. (c)(2). Pub. L. 97–448, § 301(b), struck out “and” at end of subpar. (A), substituted “paragraph (2)(C)” for “paragraphs (2)(C) and (3)(C)” in subpar. (B), and added subpar. (C).
1980
Subsec. (b)(1). Pub. L. 96–471 substituted “the taxpayer and the taxpayer’s spouse” for “a husband and wife”.
Subsec. (b)(2). Pub. L. 96–471 substituted “the taxpayer and an 80-percent owned entity, or” for “an individual and a corporation 80 percent or more in value of the outstanding stock of which is owned, directly or indirectly, by or for such individual, or”.
Subsec. (b)(3). Pub. L. 96–471 substituted “two 80-percent owned entities” for “two or more corporations 80 percent or more in value of the outstanding stock of each of which is owned, directly or indirectly, by or for the same individual”.
Subsec. (c). Pub. L. 96–471 substituted provisions defining an “80-percent owned entity” for provisions relating to constructive ownership of stock.
1978
Subsec. (a). Pub. L. 95–600 substituted “of a character which is subject to the allowance for depreciation provided in section 167” for “subject to the allowance for depreciation provided in section 167”.
1976
Pub. L. 94–455 substituted “sale of depreciable property between certain related taxpayers” for “sale of certain property between spouses or between an individual and a controlled corporation” in section catchline.
Subsec. (a). Pub. L. 94–455 substituted provisions for transactions between related persons for such transactions (1) between a husband and wife; or (2) between an individual and a corporation more than 80 percent in value of the outstanding stock of which is owned by such individual, his spouse, and his minor children and minor grandchildren and “any gain recognized to the transferee shall be treated as ordinary income if such property is, in the hands of the transferee, subject to the allowance for depreciation provided in section 167” for “any gain recognized to the transferor from the sale or exchange of such property shall be considered as gain from the sale or exchange of property which is neither a capital asset nor property described in section 1231”.
Subsec. (b). Pub. L. 94–455 substituted definition of “related persons” for prior provision making section applicable only to sales or exchanges of depreciable property.
Subsec. (c). Pub. L. 94–455 substituted provision respecting constructive ownership of stock for prior provision making section inapplicable with respect to sales or exchanges made on or before .
1958
Subsec. (c). Pub. L. 85–866 added subsec. (c).
Statutory Notes and Related Subsidiaries
Effective Date of 1997 Amendment
Amendment by Pub. L. 105–34 applicable to taxable years beginning after , see section 1308(c) of Pub. L. 105–34, set out as a note under section 267 of this title.
Effective Date of 1986 Amendment
Pub. L. 99–514, title VI, § 642(c), , 100 Stat. 2284, as amended by Pub. L. 100–647, title I, § 1006(i)(3), , 102 Stat. 3411, provided that:
“(1) In general.—
Except as provided in paragraph (2), the amendments made by this section [amending this section and sections 453 and 707 of this title] shall apply to sales after the date of the enactment of this Act [], in taxable years ending after such date.
“(2) Transitional rule for binding contracts.—
The amendments made by this section shall not apply to sales made after , which are made pursuant to a binding contract in effect on , and at all times thereafter.”
Effective Date of 1984 Amendment
Pub. L. 98–369, div. A, title I, § 175(c), , 98 Stat. 708, provided that: “The amendments made by this section [amending this section] shall apply to sales or exchanges after , in taxable years ending after such date.”
Amendment by section 421(b)(6) of Pub. L. 98–369 applicable to transfers after , in taxable years ending after such date, subject to election to have amendment apply to transfers after 1983 or to transfers pursuant to existing decrees, see section 421(d) of Pub. L. 98–369, set out as an Effective Date note under section 1041 of this title.
Pub. L. 98–369, div. A, title V, § 557(b), , 98 Stat. 899, provided that: “The amendment made by subsection (a) [amending this section] shall apply to sales or exchanges after the date of the enactment of this Act [] in taxable years ending after such date.”
Effective Date of 1983 Amendment
Amendment by Pub. L. 97–448 applicable to dispositions made after , in taxable years ending after such date, see section 311(a) of Pub. L. 97–448, set out as a note under section 453 of this title.
Effective Date of 1978 Amendment
Pub. L. 95–600, title VII, § 701(v)(2), , 92 Stat. 2920, as amended by Pub. L. 99–514, § 2, , 100 Stat. 2095, provided that: “The amendment made by paragraph (1) [amending this section] shall apply as if included in the amendment made to section 1239 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] by section 2129(a) of the Tax Reform Act of 1976 [section 2129(a) of Pub. L. 94–455].”
Effective Date of 1976 Amendment
Pub. L. 94–455, title XXI, § 2129(b), , 90 Stat. 1922, provided that: “The amendment made by this section [amending this section] shall apply to sales or exchanges after the date of the enactment of this Act []. For purposes of the preceding sentence, a sale or exchange is considered to have occurred on or before such date of enactment if such sale or exchange is made pursuant to a binding contract entered into on or before that date.”
Credits
1954–1997 · 9 acts
- 1954Aug. 16, 1954, ch. 736, 68A Stat. 332
- 1958Pub. L. 85–866, title I, § 56, , 72 Stat. 1645
- 1976Pub. L. 94–455, title XXI, § 2129(a), , 90 Stat. 1922
- 1978Pub. L. 95–600, title VII, § 701(v)(1), , 92 Stat. 2920
- 1980Pub. L. 96–471, § 5, , 94 Stat. 2255
- 1983Pub. L. 97–448, title III, § 301, , 96 Stat. 2397
- 1984Pub. L. 98–369, div. A, title I, § 175(a), (b), title IV, § 421(b)(6)(A), title V, § 557(a), , 98 Stat. 708, 794, 898
- 1986Pub. L. 99–514, title VI, § 642(a)(1)(A)–(C), , 100 Stat. 2283, 2284
- 1997Pub. L. 105–34, title XIII, § 1308(b), , 111 Stat. 1041.
Show as published
(Aug. 16, 1954, ch. 736, 68A Stat. 332; Pub. L. 85–866, title I, § 56, , 72 Stat. 1645; Pub. L. 94–455, title XXI, § 2129(a), , 90 Stat. 1922; Pub. L. 95–600, title VII, § 701(v)(1), , 92 Stat. 2920; Pub. L. 96–471, § 5, , 94 Stat. 2255; Pub. L. 97–448, title III, § 301, , 96 Stat. 2397; Pub. L. 98–369, div. A, title I, § 175(a), (b), title IV, § 421(b)(6)(A), title V, § 557(a), , 98 Stat. 708, 794, 898; Pub. L. 99–514, title VI, § 642(a)(1)(A)–(C), , 100 Stat. 2283, 2284; Pub. L. 105–34, title XIII, § 1308(b), , 111 Stat. 1041.)