§ 461. General rule for taxable year of deduction
(a)
General rule
The amount of any deduction or credit allowed by this subtitle shall be taken for the taxable year which is the proper taxable year under the method of accounting used in computing taxable income.
(b)
Special rule in case of death
In the case of the death of a taxpayer whose taxable income is computed under an accrual method of accounting, any amount accrued as a deduction or credit only by reason of the death of the taxpayer shall not be allowed in computing taxable income for the period in which falls the date of the taxpayer’s death.
(c)
Accrual of real property taxes
(1)
In general
If the taxable income is computed under an accrual method of accounting, then, at the election of the taxpayer, any real property tax which is related to a definite period of time shall be accrued ratably over that period.
(2)
When election may be made
(A)
Without consent
A taxpayer may, without the consent of the Secretary, make an election under this subsection for his first taxable year in which he incurs real property taxes. Such an election shall be made not later than the time prescribed by law for filing the return for such year (including extensions thereof).
(d)
Limitation on acceleration of accrual of taxes
(1)
General rule
In the case of a taxpayer whose taxable income is computed under an accrual method of accounting, to the extent that the time for accruing taxes is earlier than it would be but for any action of any taxing jurisdiction taken after December 31, 1960, then, under regulations prescribed by the Secretary, such taxes shall be treated as accruing at the time they would have accrued but for such action by such taxing jurisdiction.
(e)
Dividends or interest paid on certain deposits or withdrawable accounts
Except as provided in regulations prescribed by the Secretary, amounts paid to, or credited to the accounts of, depositors or holders of accounts as dividends or interest on their deposits or withdrawable accounts (if such amounts paid or credited are withdrawable on demand subject only to customary notice to withdraw) by a mutual savings bank not having capital stock represented by shares, a domestic building and loan association, or a cooperative bank shall not be allowed as a deduction for the taxable year to the extent such amounts are paid or credited for periods representing more than 12 months. Any such amount not allowed as a deduction as the result of the application of the preceding sentence shall be allowed as a deduction for such other taxable year as the Secretary determines to be consistent with the preceding sentence.
(f)
Contested liabilities
If—
(2)
the taxpayer transfers money or other property to provide for the satisfaction of the asserted liability,
(4)
but for the fact that the asserted liability is contested, a deduction would be allowed for the taxable year of the transfer (or for an earlier taxable year) determined after application of subsection (h),
then the deduction shall be allowed for the taxable year of the transfer. This subsection shall not apply in respect of the deduction for income, war profits, and excess profits taxes imposed by the authority of any foreign country or possession of the United States.
(g)
Prepaid interest
(1)
In general
If the taxable income of the taxpayer is computed under the cash receipts and disbursements method of accounting, interest paid by the taxpayer which, under regulations prescribed by the Secretary, is properly allocable to any period—
shall be charged to capital account and shall be treated as paid in the period to which so allocable.
(2)
Exception
This subsection shall not apply to points paid in respect of any indebtedness incurred in connection with the purchase or improvement of, and secured by, the principal residence of the taxpayer to the extent that, under regulations prescribed by the Secretary, such payment of points is an established business practice in the area in which such indebtedness is incurred, and the amount of such payment does not exceed the amount generally charged in such area.
(h)
Certain liabilities not incurred before economic performance
(1)
In general
For purposes of this title, in determining whether an amount has been incurred with respect to any item during any taxable year, the all events test shall not be treated as met any earlier than when economic performance with respect to such item occurs.
(2)
Time when economic performance occurs
Except as provided in regulations prescribed by the Secretary, the time when economic performance occurs shall be determined under the following principles:
(A)
Services and property provided to the taxpayer
If the liability of the taxpayer arises out of—
(i)
the providing of services to the taxpayer by another person, economic performance occurs as such person provides such services,
(B)
Services and property provided by the taxpayer
If the liability of the taxpayer requires the taxpayer to provide property or services, economic performance occurs as the taxpayer provides such property or services.
(C)
Workers compensation and tort liabilities of the taxpayer
If the liability of the taxpayer requires a payment to another person and—
economic performance occurs as the payments to such person are made. Subparagraphs (A) and (B) shall not apply to any liability described in the preceding sentence.
(3)
Exception for certain recurring items
(A)
In general
Notwithstanding paragraph (1) an item shall be treated as incurred during any taxable year if—
(i)
the all events test with respect to such item is met during such taxable year (determined without regard to paragraph (1)),
(i)
Special rules for tax shelters
(1)
Recurring item exception not to apply
In the case of a tax shelter, economic performance shall be determined without regard to paragraph (3) of subsection (h).
(2)
Special rule for spudding of oil or gas wells
(A)
In general
In the case of a tax shelter, economic performance with respect to amounts paid during the taxable year for drilling an oil or gas well shall be treated as having occurred within a taxable year if drilling of the well commences before the close of the 90th day after the close of the taxable year.
(B)
Deduction limited to cash basis
(i)
Tax shelter partnerships
In the case of a tax shelter which is a partnership, in applying section
704
(d) to a deduction or loss for any taxable year attributable to an item which is deductible by reason of subparagraph (A), the term “cash basis” shall be substituted for the term “adjusted basis”.
(C)
Cash basis defined
For purposes of subparagraph (B), a partner’s cash basis in a partnership shall be equal to the adjusted basis of such partner’s interest in the partnership, determined without regard to—
(3)
Tax shelter defined
For purposes of this subsection, the term “tax shelter” means—
(j)
Limitation on excess farm losses of certain taxpayers
(1)
Limitation
If a taxpayer other than a C corporation receives any applicable subsidy for any taxable year, any excess farm loss of the taxpayer for the taxable year shall not be allowed.
(2)
Disallowed loss carried to next taxable year
Any loss which is disallowed under paragraph (1) shall be treated as a deduction of the taxpayer attributable to farming businesses in the next taxable year.
(3)
Applicable subsidy
For purposes of this subsection, the term “applicable subsidy” means—
(4)
Excess farm loss
For purposes of this subsection—
(A)
In general
The term “excess farm loss” means the excess of—
(B)
Threshold amount
(ii)
Special rules for determining aggregate amounts
For purposes of clause (i)(II)—
(I)
notwithstanding the disregard in subparagraph (A)(i) of any disallowance under paragraph (1), in the case of any loss which is carried forward under paragraph (2) from any taxable year, such loss (or any portion thereof) shall be taken into account for the first taxable year in which a deduction for such loss (or portion) is not disallowed by reason of this subsection, and
(C)
Farming business
(ii)
Certain trades and businesses included
If, without regard to this clause, a taxpayer is engaged in a farming business with respect to any agricultural or horticultural commodity—
(5)
Application of subsection in case of partnerships and S corporations
In the case of a partnership or S corporation—
(B)
each partner’s or shareholder’s proportionate share of the items of income, gain, or deduction of the partnership or S corporation for any taxable year from farming businesses attributable to the partnership or S corporation, and of any applicable subsidies received by the partnership or S corporation during the taxable year, shall be taken into account by the partner or shareholder in applying this subsection to the taxable year of such partner or shareholder with or within which the taxable year of the partnership or S corporation ends.
The Secretary may provide rules for the application of this paragraph to any other pass-thru entity to the extent necessary to carry out the provisions of this subsection.
(6)
Additional reporting
The Secretary may prescribe such additional reporting requirements as the Secretary determines appropriate to carry out the purposes of this subsection.
(7)
Coordination with section
469
This subsection shall be applied before the application of section
469.