Title 26 — Internal Revenue Code
Part V · Chapter 1 — Normal Taxes and Surtaxes
§ 1341. Computation of tax where taxpayer restores substantial amount held under claim of right
Statutory text
General rule
If—
an item was included in gross income for a prior taxable year (or years) because it appeared that the taxpayer had an unrestricted right to such item;
a deduction is allowable for the taxable year because it was established after the close of such prior taxable year (or years) that the taxpayer did not have an unrestricted right to such item or to a portion of such item; and
the amount of such deduction exceeds $3,000,
then the tax imposed by this chapter for the taxable year shall be the lesser of the following:
the tax for the taxable year computed with such deduction; or
an amount equal to—
the tax for the taxable year computed without such deduction, minus
the decrease in tax under this chapter (or the corresponding provisions of prior revenue laws) for the prior taxable year (or years) which would result solely from the exclusion of such item (or portion thereof) from gross income for such prior taxable year (or years).
For purposes of paragraph (5)(B), the corresponding provisions of the Internal Revenue Code of 1939 shall be chapter 1 of such code (other than subchapter E, relating to self-employment income) and subchapter E of chapter 2 of such code.
Special rules
If the decrease in tax ascertained under subsection (a)(5)(B) exceeds the tax imposed by this chapter for the taxable year (computed without the deduction) such excess shall be considered to be a payment of tax on the last day prescribed by law for the payment of tax for the taxable year, and shall be refunded or credited in the same manner as if it were an overpayment for such taxable year.
Subsection (a) does not apply to any deduction allowable with respect to an item which was included in gross income by reason of the sale or other disposition of stock in trade of the taxpayer (or other property of a kind which would properly have been included in the inventory of the taxpayer if on hand at the close of the prior taxable year) or property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business. This paragraph shall not apply if the deduction arises out of refunds or repayments with respect to rates made by a regulated public utility (as defined in section 7701(a)(33) without regard to the limitation contained in the last two sentences thereof) if such refunds or repayments are required to be made by the Government, political subdivision, agency, or instrumentality referred to in such section, or by an order of a court, or are made in settlement of litigation or under threat or imminence of litigation.
If the tax imposed by this chapter for the taxable year is the amount determined under subsection (a)(5), then the deduction referred to in subsection (a)(2) shall not be taken into account for any purpose of this subtitle other than this section.
For purposes of determining whether paragraph (4) or paragraph (5) of subsection (a) applies—
in any case where the deduction referred to in paragraph (4) of subsection (a) results in a net operating loss, such loss shall, for purposes of computing the tax for the taxable year under such paragraph (4), be carried back to the same extent and in the same manner as is provided under section 172; and
in any case where the exclusion referred to in paragraph (5)(B) of subsection (a) results in a net operating loss or capital loss for the prior taxable year (or years), such loss shall, for purposes of computing the decrease in tax for the prior taxable year (or years) under such paragraph (5) (B), be carried back and carried over to the same extent and in the same manner as is provided under section 172 or section 1212, except that no carryover beyond the taxable year shall be taken into account.
For purposes of this chapter, the net operating loss described in paragraph (4)(A) of this subsection, or the net operating loss or capital loss described in paragraph (4)(B) of this subsection, as the case may be, shall (after the application of paragraph (4) or (5)(B) of subsection (a) for the taxable year) be taken into account under section 172 or 1212 for taxable years after the taxable year to the same extent and in the same manner as—
a net operating loss sustained for the taxable year, if paragraph (4) of subsection (a) applied, or
a net operating loss or capital loss sustained for the prior taxable year (or years), if paragraph (5)(B) of subsection (a) applied.
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. 348 · 68A Stat. 348
Enacted · 26 U.S.C. § 1341
Aug. 16, 1954, ch. 736, 68A Stat. 348
Source evidence
Code source credit
Aug. 16, 1954, ch. 736, 68A Stat. 348Technical Amendments Act of 1958
Pub. L. 85–866 § 60(a) · 72 Stat. 1606
Inserted · 26 U.S.C. § 1341(a)
Pub. L. 85–866, § 60(a), inserted “and subchapter E of chapter 2 of such code” in last sentence
Source evidence
Code amendment note
Subsec. (a). Pub. L. 85–866, § 60(a), inserted “and subchapter E of chapter 2 of such code” in last sentence.Enacted provision · exact public law section
(a) Definition of Corresponding Provisions of 1939 Code.— The last sentence of section 1341 (a) (relating to definition of corresponding 26 USC 1341. provisions of the 1939 Code) is amended by inserting before the period at the end thereof “and subchapter E of chapter 2 of such code”.Technical Amendments Act of 1958
Pub. L. 85–866 § 60(b) · 72 Stat. 1606
Inserted · 26 U.S.C. § 1341(b)(2)
Pub. L. 85–866, § 60(b), (c), in second sentence inserted “with respect to rates”
Inserted · 26 U.S.C. § 1341(b)(2)
Pub. L. 85–866, § 60(b), (c), in second sentence inserted “, or by an order of a court, or are made in settlement of litigation or under threat or imminence of litigation”
Inserted · 26 U.S.C. § 1341(b)(2)
Pub. L. 85–866, § 60(b), (c), in second sentence inserted last sentence
Source evidence
Code amendment note
Subsec. (b)(2). Pub. L. 85–866, § 60(b), (c), in second sentence inserted “with respect to rates” and inserted “, or by an order of a court, or are made in settlement of litigation or under threat or imminence of litigation” and inserted last sentence.Enacted provision · exact public law section
(b) Refunds or Repayments by Regulated Public Utilities.— The last sentence of section 1341 (b) (2) (relating to special rules applicable to computation of tax where taxpayer restores substantial amount held under claim of right) is amended to read as follows: “This paragraph shall not apply if the deduction arises out of refunds or repayments with respect to rates made by a regulated public utility (as defined in section 1503 (c) without regard to paragraph (2) thereof) if such refunds or repayments are required to be made by the Government, political subdivision, agency, or instrumentality referred to in such section, or by an order of a court, or are made in settlement of litigation or under threat or imminence of litigation.”Technical Amendments Act of 1958
Pub. L. 85–866 § 60(d) · 72 Stat. 1606
Added · 26 U.S.C. § 1341(b)(3)
Pub. L. 85–866, § 60(d), added par. (3)
Source evidence
Code amendment note
Subsec. (b)(3). Pub. L. 85–866, § 60(d), added par. (3).Enacted provision · exact public law section
(d) Technical Amendment.— Section 1341 (b) is further amended by adding at the end thereof the following new paragraph: “(3) If the tax imposed by this chapter for the taxable year is the amount determined under subsection (a) (5), then the deduction referred to in subsection (a) (2) shall not be taken into account for any purpose of this subtitle other than this section.”Pub. L. 87–863 § 5(a) · 76 Stat. 1141
Added · 26 U.S.C. § 1341(b)(4); 26 U.S.C. § 1341(b)(5)
Pub. L. 87–863 added pars. (4) and (5)
Source evidence
Code amendment note
Subsec. (b)(4), (5). Pub. L. 87–863 added pars. (4) and (5).Enacted provision · exact public law section
(a) Section 1341(b) of the Internal Revenue Code of 1954 (relating to special rules applicable to computation of tax where tax-payer restores substantial amount held under claim of right) is amended by adding at the end thereof the following new paragraphs: “(4) For purposes of determining whether paragraph (4) or paragraph (5) of subsection (a) applies— “(A) in any case where the deduction referred to in paragraph (4) of subsection (a) results in a net operating loss, such loss shall, for purposes of computing the tax for the taxable year under such paragraph (4), be carried back to the same extent and in the same manner as is provided under section 172; and “(B) in any case where the exclusion referred to in paragraph (5) (B) of subsection (a) results in a net operating loss or capital loss for the prior taxable year (or years), such loss shall, for purposes of computing the decrease in tax for the prior taxable year (or years) under such paragraph (5)(B), be carried back and carried over to the same extent and in the 26 USC 172, 1212. same manner as is provided under section 172 or section 1212, except that no carryover beyond the taxable year shall lie taken into account. “(5) For purposes of this chapter, the net operating loss described in paragraph (4) (A) of this subsection, or the net operating loss or capital loss described in paragraph (4) (14) of this subsection, as the case may be, shall (after the application of paragraph (4) or (5) (B) of subsection (a) for the taxable year) be taken into account under section 172 or 1212 for taxable years after the taxable year to the same extent and in the same manner as— “(A) a net operating loss sustained for the taxable year, if paragraph (4) of subsection (a) applied, or “(B) a net operating loss or capital loss sustained for the prior taxable year (or years), if paragraph (5) (B) of subsection (a) applied.”Revenue Act of 1964
Pub. L. 88–272 title II § 234(b)(7) · 78 Stat. 19
Substituted · 26 U.S.C. § 1341(b)(2)
Pub. L. 88–272 substituted “7701(a)(33) without regard to the limitation continued in the last two sentences thereof)” for “1503(c) without regard to paragraph (2) thereof)”
Source evidence
Code amendment note
Subsec. (b)(2). Pub. L. 88–272 substituted “7701(a)(33) without regard to the limitation continued in the last two sentences thereof)” for “1503(c) without regard to paragraph (2) thereof)”.Enacted provision · exact public law section
(7) Section 1341(b) (2) (relating to special rules for the computation of tax where taxpayer restores substantial amount held under claim of right) is amended by striking out “(as defined in section 1503(c) without regard to paragraph (2) thereof)” and inserting in lieu thereof “(as defined in section 7701(a) (33) without regard to the limitation contained in the last two sentences thereof)”.Pub. L. 94–455 title XIX § 1901(a)(146) · 90 Stat. 1520
Struck · 26 U.S.C. § 1341(b)(2)
Pub. L. 94–455 struck out provision relating to the applicability of this paragraph where deduction arises out of payments or repayments made pursuant to a price redetermination provision in a subcontract entered into before Jan. 1, 1958
Source evidence
Code amendment note
Subsec. (b)(2). Pub. L. 94–455 struck out provision relating to the applicability of this paragraph where deduction arises out of payments or repayments made pursuant to a price redetermination provision in a subcontract entered into before Jan. 1, 1958.Enacted provision · exact public law section
(146) Amendment of section 1341.— Section 1341(b)(2) (relating to claim of right) is amended by striking out the last sentence.Effective date note
Amendment by Pub. L. 94–455 effective for taxable years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L. 94–455, set out as a note under section 2 of this title.
8 of 9 references resolved to an enrolled provision · 1 partial
Editorial Notes
References in Text
Chapter 1 of the Internal Revenue Code of 1939, referred to in subsec. (a), was comprised of sections 1 to 482 of former Title 26, Internal Revenue Code. Chapter 1 was repealed by section 7851(a)(1)(A) of this title. For table of comparisons of the 1939 Code to the 1986 Code, see Table I preceding section 1 of this title. See also section 7851(e) of this title for provision that references in the 1986 Code to a provision of the 1939 Code, not then applicable, shall be deemed a reference to the corresponding provision of the 1986 Code, which is then applicable.
Subchapter E of chapter 2 of the Internal Revenue Code of 1939, referred to in subsec. (a), was comprised of sections 710 to 784 of former Title 26, Internal Revenue Code. Sections 710 to 736, 740, 742 to 744, 750, 751, 760, 761, and 780 to 784 were repealed by act Nov. 8, 1945, ch. 453, title I, § 122(a), 59 Stat. 568. Section 741 was repealed by act Oct. 21, 1942, ch. 619, title II, §§ 224(b), 228(b), 56 Stat. 920, 925. Section 752 was repealed by act Oct. 21, 1942, ch. 619, title II, § 229(a)(1), 56 Stat. 931, eff. as of .
Amendments1958–1976 · 4 rounds
1976
Subsec. (b)(2). Pub. L. 94–455 struck out provision relating to the applicability of this paragraph where deduction arises out of payments or repayments made pursuant to a price redetermination provision in a subcontract entered into before .
1964
Subsec. (b)(2). Pub. L. 88–272 substituted “7701(a)(33) without regard to the limitation continued in the last two sentences thereof)” for “1503(c) without regard to paragraph (2) thereof)”.
1962
Subsec. (b)(4), (5). Pub. L. 87–863 added pars. (4) and (5).
1958
Subsec. (a). Pub. L. 85–866, § 60(a), inserted “and subchapter E of chapter 2 of such code” in last sentence.
Subsec. (b)(2). Pub. L. 85–866, § 60(b), (c), in second sentence inserted “with respect to rates” and inserted “, or by an order of a court, or are made in settlement of litigation or under threat or imminence of litigation” and inserted last sentence.
Subsec. (b)(3). Pub. L. 85–866, § 60(d), added par. (3).
Statutory Notes and Related Subsidiaries
Effective Date of 1976 Amendment
Amendment by Pub. L. 94–455 effective for taxable years beginning after , see section 1901(d) of Pub. L. 94–455, set out as a note under section 2 of this title.
Effective Date of 1964 Amendment
Amendment by Pub. L. 88–272 applicable to taxable years beginning after , see section 234(c) of Pub. L. 88–272, set out as a note under section 1503 of this title.
Effective Date of 1962 Amendment
Pub. L. 87–863, § 5(b), , 76 Stat. 1143, provided that: “The amendment made by subsection (a) [amending this section] shall be effective with respect to taxable years beginning on or after .”
Effective Date of 1958 Amendment
Amendment by section 60(a), (c), (d) of Pub. L. 85–866 applicable to taxable years beginning after , and ending after , see section 1(c)(1) of Pub. L. 85–866, set out as a note under section 165 of this title.
Pub. L. 85–866, title I, § 60(e), , 72 Stat. 1647, provided that: “The amendment made by subsection (b) [amending this section] shall apply with respect to taxable years beginning after . No interest shall be allowed or paid on any overpayment resulting from the application of the amendment made by subsection (c) [amending this section].”
Credits
1954–1976 · 5 acts
- 1954Aug. 16, 1954, ch. 736, 68A Stat. 348
- 1958Pub. L. 85–866, title I, § 60(a)–(d), , 72 Stat. 1647
- 1962Pub. L. 87–863, § 5(a), , 76 Stat. 1142
- 1964Pub. L. 88–272, title II, § 234(b)(7), , 78 Stat. 116
- 1976Pub. L. 94–455, title XIX, § 1901(a)(146), , 90 Stat. 1788.
Show as published
(Aug. 16, 1954, ch. 736, 68A Stat. 348; Pub. L. 85–866, title I, § 60(a)–(d), , 72 Stat. 1647; Pub. L. 87–863, § 5(a), , 76 Stat. 1142; Pub. L. 88–272, title II, § 234(b)(7), , 78 Stat. 116; Pub. L. 94–455, title XIX, § 1901(a)(146), , 90 Stat. 1788.)