26 U.S.C. § 38
§ 38. General business credit
No plain-English explainer yet. Below is the official text. Explainers are being added section by section.
History
Added in 1984 by the Deficit Reduction Act of 1984. Last changed December 29, 2022 by the Consolidated Appropriations Act, 2023 (SECURE 2.0).
Every change, newest first (32)
- December 29, 2022Consolidated Appropriations Act, 2023 (SECURE 2.0)
- August 16, 2022Inflation Reduction Act of 2022
- December 20, 2019Further Consolidated Appropriations Act, 2020 (SECURE Act)
- March 23, 2018Consolidated Appropriations Act, 2018
- December 22, 2017Tax Cuts and Jobs Act (2017)
- December 18, 2015Consolidated Appropriations Act, 2016 (PATH Act)
- December 19, 2014Tax Increase Prevention Act of 2014
- September 27, 2010Public Law 111-240
- March 23, 2010Patient Protection and Affordable Care Act (2010)
- February 17, 2009Public Law 111-5
- October 3, 2008Emergency Economic Stabilization Act of 2008
- July 30, 2008Public Law 110-289
- June 18, 2008Public Law 110-246
- June 17, 2008Public Law 110-245
- May 22, 2008Public Law 110-234
- December 29, 2007Public Law 110-172
- May 25, 2007Public Law 110-28
- December 20, 2006Public Law 109-432
- December 21, 2005Gulf Opportunity Zone Act of 2005
- August 10, 2005Public Law 109-59
- August 8, 2005Public Law 109-58
- October 22, 2004American Jobs Creation Act of 2004
- March 9, 2002Public Law 107-147
- June 7, 2001Economic Growth and Tax Relief Reconciliation Act of 2001
- December 21, 2000Public Law 106-554
- August 20, 1996Small Business Job Protection Act of 1996
- August 10, 1993Omnibus Budget Reconciliation Act of 1993
- October 24, 1992Public Law 102-486
- November 5, 1990Omnibus Budget Reconciliation Act of 1990
- November 10, 1988Technical and Miscellaneous Revenue Act of 1988
- October 22, 1986Tax Reform Act of 1986
- July 18, 1984Deficit Reduction Act of 1984 · added this section
The law as written
Current through Public Law 119-102. Amendment notes omitted.
Structure
There shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the sum of—
the business credit carryforwards carried to such taxable year,
the amount of the current year business credit, plus
the business credit carrybacks carried to such taxable year.
For purposes of this subpart, the amount of the current year business credit is the sum of the following credits determined for the taxable year:
the investment credit determined under section 46,
the work opportunity credit determined under section 51(a),
the alcohol fuels credit determined under section 40(a),
the research credit determined under section 41(a),
the low-income housing credit determined under section 42(a),
the enhanced oil recovery credit under section 43(a),
in the case of an eligible small business (as defined in section 44(b)), the disabled access credit determined under section 44(a),
the renewable electricity production credit under section 45(a),
the empowerment zone employment credit determined under section 1396(a),
the Indian employment credit as determined under section 45A(a),
the employer social security credit determined under section 45B(a),
the orphan drug credit determined under section 45C(a),
the new markets tax credit determined under section 45D(a),
in the case of an eligible employer (as defined in section 45E(c)), the small employer pension plan startup cost credit determined under section 45E(a),
the employer-provided child care credit determined under section 45F(a),
the railroad track maintenance credit determined under section 45G(a),
the biodiesel fuels credit determined under section 40A(a),
the low sulfur diesel fuel production credit determined under section 45H(a),
the marginal oil and gas well production credit determined under section 45I(a),
the distilled spirits credit determined under section 5011(a),
the advanced nuclear power facility production credit determined under section 45J(a),
the nonconventional source production credit determined under section 45K(a),
the new energy efficient home credit determined under section 45L(a),
the portion of the alternative motor vehicle credit to which section 30B(g)(1) applies,
the portion of the alternative fuel vehicle refueling property credit to which section 30C(d)(1) applies,
the mine rescue team training credit determined under section 45N(a),
in the case of an eligible agricultural business (as defined in section 45O(e)), the agricultural chemicals security credit determined under section 45O(a),
the differential wage payment credit determined under section 45P(a),
the carbon dioxide sequestration credit determined under section 45Q(a),
the portion of the new clean vehicle credit to which section 30D(c)(1) applies,
the small employer health insurance credit determined under section 45R,
in the case of an eligible employer (as defined in section 45S(c)), the paid family and medical leave credit determined under section 45S(a),
in the case of an eligible employer (as defined in section 45T(c)), the retirement auto-enrollment credit determined under section 45T(a), plus
the zero-emission nuclear power production credit determined under section 45U(a).
the sustainable aviation fuel credit determined under section 40B,
the clean hydrogen production credit determined under section 45V(a),
the qualified commercial clean vehicle credit determined under section 45W,
the advanced manufacturing production credit determined under section 45X(a),
the clean electricity production credit determined under section 45Y(a),
the clean fuel production credit determined under section 45Z(a), plus
The credit allowed under subsection (a) for any taxable year shall not exceed the excess (if any) of the taxpayer’s net income tax over the greater of—
the tentative minimum tax for the taxable year, or
25 percent of so much of the taxpayer’s net regular tax liability as exceeds $25,000.
For purposes of the preceding sentence, the term “net income tax” means the sum of the regular tax liability and the tax imposed by section 55, reduced by the credits allowable under subparts A and B of this part, and the term “net regular tax liability” means the regular tax liability reduced by the sum of the credits allowable under subparts A and B of this part.
In the case of the empowerment zone employment credit—
this section and section 39 shall be applied separately with respect to such credit, and
for purposes of applying paragraph (1) to such credit—
75 percent of the tentative minimum tax shall be substituted for the tentative minimum tax under subparagraph (A) thereof, and
the limitation under paragraph (1) (as modified by subclause (I)) shall be reduced by the credit allowed under subsection (a) for the taxable year (other than the empowerment zone employment credit and the specified credits).
For purposes of this paragraph, the term “empowerment zone employment credit” means the portion of the credit under subsection (a) which is attributable to the credit determined under section 1396 (relating to empowerment zone employment credit).
In the case of specified credits—
this section and section 39 shall be applied separately with respect to such credits, and
in applying paragraph (1) to such credits—
the tentative minimum tax shall be treated as being zero, and
the limitation under paragraph (1) (as modified by subclause (I)) shall be reduced by the credit allowed under subsection (a) for the taxable year (other than the specified credits).
For purposes of this subsection, the term “specified credits” means—
for taxable years beginning after December 31, 2004, the credit determined under section 40,
the credit determined under section 41 for the taxable year with respect to an eligible small business (as defined in paragraph (5)(A) after application of the rules of paragraph (5)(B)),
the credit determined under section 42 to the extent attributable to buildings placed in service after December 31, 2007,
the credit determined under section 45 to the extent that such credit is attributable to electricity or refined coal produced—
at a facility which is originally placed in service after the date of the enactment of this paragraph, and
during the 4-year period beginning on the date that such facility was originally placed in service,
the credit determined under section 45 to the extent that such credit is attributable to section 45(e)(10) (relating to Indian coal production facilities),
the credit determined under section 45B,
the credit determined under section 45G,
the credit determined under section 45R,
the credit determined under section 45S,
the credit determined under section 46 to the extent that such credit is attributable to the energy credit determined under section 48,
the credit determined under section 46 to the extent that such credit is attributable to the rehabilitation credit under section 47, but only with respect to qualified rehabilitation expenditures properly taken into account for periods after December 31, 2007, and
the credit determined under section 51.
For purposes of this subsection, the term “eligible small business” means, with respect to any taxable year—
a corporation the stock of which is not publicly traded,
a partnership, or
a sole proprietorship,
if the average annual gross receipts of such corporation, partnership, or sole proprietorship for the 3-taxable-year period preceding such taxable year does not exceed $50,000,000. For purposes of applying the test under the preceding sentence, rules similar to the rules of paragraphs (2) and (3) of section 448(c) shall apply.
For purposes of paragraph (4)(B)(ii), any credit determined under section 41 with respect to a partnership or S corporation shall not be treated as a specified credit by any partner or shareholder unless such partner or shareholder meets the gross receipts test under subparagraph (A) for the taxable year in which such credit is treated as a current year business credit.
In the case of a husband or wife who files a separate return, the amount specified under subparagraph (B) of paragraph (1) shall be $12,500 in lieu of $25,000. This subparagraph shall not apply if the spouse of the taxpayer has no business credit carryforward or carryback to, and has no current year business credit for, the taxable year of such spouse which ends within or with the taxpayer’s taxable year.
In the case of a controlled group, the $25,000 amount specified under subparagraph (B) of paragraph (1) shall be reduced for each component member of such group by apportioning $25,000 among the component members of such group in such manner as the Secretary shall by regulations prescribe. For purposes of the preceding sentence, the term “controlled group” has the meaning given to such term by section 1563(a).
In the case of a person described in subparagraph (A) or (B) of section 46(e)(1) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990), the $25,000 amount specified under subparagraph (B) of paragraph (1) shall equal such person’s ratable share (as determined under section 46(e)(2) (as so in effect) of such amount.
In the case of an estate or trust, the $25,000 amount specified under subparagraph (B) of paragraph (1) shall be reduced to an amount which bears the same ratio to $25,000 as the portion of the income of the estate or trust which is not allocated to beneficiaries bears to the total income of the estate or trust.
In the case of a corporation—
the first sentence of paragraph (1) shall be applied by substituting “25 percent of the taxpayer’s net income tax as exceeds $25,000” for “the greater of” and all that follows,
paragraph (2)(A) shall be applied without regard to clause (ii)(I) thereof, and
paragraph (4)(A) shall be applied without regard to clause (ii)(I) thereof.
For purposes of any provision of this title where it is necessary to ascertain the extent to which the credits determined under any section referred to in subsection (b) are used in a taxable year or as a carryback or carryforward—
The order in which such credits are used shall be determined on the basis of the order in which they are listed in subsection (b) as of the close of the taxable year in which the credit is used.