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FINANCING POLLUTION CONTROL

1. Itemized Deductions for Individuals and Corporations

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26 U.S.C. 169, 175

§ 169. Amortization of pollution control facilities. (a) Allowance of deduction.

Every person, at his election, shall be entitled to a deduction with respect to the amortization of the amortizable basis of any certified pollution control facility (as defined in subsection (d)), based on a period of 60 months. Such amortization deduction shall be an amount, with respect to each month of such period within the taxable year, equal to the amortizable basis of the pollution control facility at the end of such month divided by the number of months (including the month for which the deduction is computed) remaining in the period. Such amortizable basis at the end of the month shall be computed without regard to the amortization deduction for such month. The amortization deduction provided by this section with respect to any month shall be in lieu of the depreciation deduction with respect to such pollution control facility for such month provided by sec. 167.1 The 60-month period shall begin, as to any pollution control facility, at the election of the taxpayer, with the month following the month in which such facility was completed or acquired, or with the succeeding taxable year. (b) Election of amortization.

The election of the taxpayer to take the amortization deduction and to begin the 60-month period with the month following the month in which the facility is completed or acquired, or with the taxable year succeeding the taxable year in which such facility is completed or acquired, shall be made by filing with the Secretary or his delegate, in such manner, in such form, and within such time, as the Secretary or his delegate may by regulations prescribe, a statement of such election.

(c) Termination of amortization deduction.

A taxpayer which has elected under subsection (b) to take the amortization deduction provided in subsection (a) may, at any time after making such election, discontinue the amortization deduction with respect to the remainder of the amortization period, such discontinuance to begin as of the beginning of any month specified by the taxpayer in a notice in writing filed with the Secretary or his delegate before the beginning of such month. The depreciation deduction provided under section 167 shall be

1 Section 167 details the manner in which depreciation is computed.

allowed, beginning with the first month as to which the amortization deduction does not apply, and the taxpayer shall not be entitled to any further amortization deduction under this section with respect to such pollution control facility. (d) Definitions.

For purposes of this section

(1) Certified pollution control facility.

The term "certified pollution control facility" means a new identifiable treatment facility which is used, in connection with a plant or other property in operation before January 1, 1969, to abate or control water or atmospheric pollution or contamination by removing, altering, disposing, or storing of pollutants, contaminants, wastes, or heat and which

(A) the State certifying authority having jurisdiction with respect to such facility has certified to the Federal certifying authorty as having been constructed, reconstructed, erected, or acquired in conformity with the State program or requirements for abatement or control of water or atmospheric pollution or contamination; and

(B) the Federal certifying authority has certified to the Secretary or his delegate (i) as being in compliance with the applicable regulations of Federal agencies and (ii) as being in furtherance of the general policy of the United States for cooperation with the States in the prevention and abatement of water pollution under the Federal Water Pollution Control Act, as amended (33 U.S.C. 466 et seq.), or in the prevention and abatement of atmospheric pollution and contamination under the Clean Air Act, as amended (42 U.S.C. 1857 et seq.). (2) State certifying authority.

The term "State certifying authority" means, in the case of water pollution, the State water pollution control agency as defined in section 13 (a) of the Federal Water Pollution Control Act and, in the case of air pollution, the air pollution control agency as defined in section 302(b) of the Clean Air Act. The term "State certifying authority" includes any interstate agency authorized to act in place of a certifying authority of the State. (3) Federal certifying authority.

The term "Federal certifying authority" means, in the case of water pollution, the Secretary of the Interior and, in the case of air pollution, the Secretary of Health, Education, and Welfare. (4) New identifiable treatment facility.

For purposes of paragraph (1), the term "new

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(ii) acquired after December 31, 1968, if the original use of the property commences with the taxpayer and commences after such date, and

(B) is placed in service by the taxpayer before January 1, 1975.

In applying this section in the case of property described in clause (i) of subparagraph (A), there shall be taken into account only that portion of the basis which is properly attributable to construction, reconstruction, or erection after December 31, 1968.

(e) Profitmaking abatement works, etc.

The Federal certifying authority shall not certify any property under subsection (d) (1) (B) to the extent it appears that by reason of profits derived through the recovery of wastes or otherwise in the operation of such property, its costs will be recovered over its actual useful life.

(f) Amortizable basis.

(1) Defined.

For purposes of this section, the term "amortizable basis" means that portion of the adjusted basis (for determining gain) of a certified pollution control facility which may be amortized under this section.

(2) Special rules.

(A) If a certified pollution control facility has a useful life (determined as of the first day of the first month for which a deduction is allowable under this section) in excess of 15 years, the amortizable basis of such facility shall be equal to an amount which bears the same ratio to the portion of the adjusted basis of such facility, which would be eligible for amortization but for the application of this subparagraph, as 15 bears to the number of years of useful life of such facility.

(B) The amortizable basis of a certified pollution control facility with respect to which an election under this section is in effect shall not be increased, for purposes of this section, for additions or improvements after the amortization period has begun.

(g) Depreciation deduction.

The depreciation deduction provided by section 167 shall, despite the provisions of subsection (a), be allowed with respect to the portion of the adjusted basis which is not the amortizable basis.

(h) Investment credit not to be allowed.

In the case of any property with respect to which an election has been made under subsection (a), so much of the adjusted basis of the property as (after

the application of subsection (f)) constitutes the amortizable basis for purposes of this section shall not be treated as section 38 property within the meaning of section 48(a).

(i) Life tenant and remainderman.

In the case of property held by one person for life with remainder to another person, the deduction under this section shall be computed as if the life tenant were the absolute owner of the property and shall be allowable to the life tenant.

(j) Cross reference.

For special rule with respect to certain gain derived from the disposition of property the adjusted basis of which is determined with regard to this section, see section 1245. (Added Pub. L. 91-172, title VII, § 704(a), Dec. 30, 1969, 83 Stat. 667.)

EFFECTIVE DATE

Section 704 (c) of Pub. L. 91-172 provided that: "The amendments made by this section [adding this section and amending sections 642, 1082, 1245, and 1250 of this title] shall apply with respect to taxable years ending after December 31, 1968."

PRIOR PROVISIONS

A prior section 169, act Aug. 16, 1954, ch. 736, 68A Stat. 55, dealing with the amortization of grain-storage facilities, was stricken in the reorganization of Part VI of subchapter B of chapter 1 of this title by Pub. L. 91-172.

TRANSFER OF FUNCTIONS

The functions vested in the Secretary of the Interior and the Secretary of Health, Education, and Welfare by subsec. (d) (1) (B) and (3) of this section were transferred to the Administrator of the Environmental Protection Agency by 1970 Reorg. Plan No. 3, § 2(a) (9), eff. Dec. 2, 1970, 35 F.R. 15623, 84 Stat. ------, set out in the Appendix to Title 5, Government Organization and Employees.

SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 57 169, 1082, 1245. 1250 of this title.

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§ 175. Soil and water conservation expenditures. (a) In general.

A taxpayer engaged in the business of farming may treat expenditures which are paid or incurred by him during the taxable year for the purpose of soil or water conservation in respect of land used in farming, or for the prevention of erosion of land used in farming, as expenses which are not chargeable to capital account. The expenditures so treated shall be allowed as a deduction. (b) Limitation.

The amount deductible under subsection (a) for any taxable year shall not exceed 25 percent of the gross income derived from farming during the taxable year. If for any taxable year the total of the expenditures treated as expenses which are not chargeable to capital account exceeds 25 percent of the gross income derived from farming during the taxable year, such excess shall be deductible for succeeding taxable years in order of time; but the amount deductible under this section for any one such succeeding taxable year (including the expenditures actually paid or incurred during the taxable year) shall not exceed 25 percent of the gross income derived from farming during the taxable year. (c) Definitions.

For purposes of subsection (a).

(1) The term "expenditures which are paid or incurred by him during the taxable year for the purpose of soil or water conservation in respect of land used in farming, or for the prevention of erosion of land used in farming" means expenditures paid or incurred for the treatment or moving of earth, including (but not limited to) leveling, grading and terracing, contour furrowing, the construction, control, and protection of diversion channels, drainage ditches, earthen dams, watercourses, outlets, and ponds, the eradication of brush, and the planting of windbreaks. Such term does not include

(A) the purchase, construction, installation, or improvement of structures, appliances, or facilities which are of a character which is subject to the allowance for depreciation provided in section 167, or

(B) any amount paid or incurred which is allowable as a deduction without regard to this section.

Notwithstanding the preceding sentences, such term also includes any amount, not otherwise allowable as a deduction, paid or incurred to satisfy any part of an assessment levied by a soil or water conservation or drainage district to defray expenditures made by such district (i) which, if paid or incurred by the taxpayer, would without regard to this sentence constitute expenditures deductible under this section, or (ii) for property of a character subject to the allowance for depreciation provided in section 167 and used in the soil or water conservation or drainage district's business as such (to the extent that the taxpayer's share of the assessment levied on the members of the district for such property does not exceed 10 percent of such assessment).

(2) The term "land used in farming" means land used (before or simultaneously with the expenditures described in paragraph (1)) by the taxpayer or his tenant for the production of crops, fruits, or other agricultural products or for the sustenance of livestock.

(d) When method may be adopted.

(1) Without consent.

A taxpayer may, without the consent of the Secretary or his delegate, adopt the method provided in this section for his first taxable year

(A) which begins after December 31, 1953, and ends after the date on which this title is enacted, and

(B) for which expenditures described in subsection (a) are paid or incurred.

(2) With consent.

A taxpayer may, with the consent of the Secretary or his delegate, adopt at any time the method provided in this section.

(e) Scope.

The method adopted under this section shall apply to all expenditures described in subsection (a). The method adopted shall be adhered to in computing taxable income for the taxable year and for all subsequent taxable years unless, with the approval of

the Secretary or his delegate, a change to a different method is authorized with respect to part or all of such expenditures.

(f) Rules applicable to assessments for depreciable property.

(1) Amounts treated as paid or incurred over 9-year period.

In the case of an assessment levied to defray expenditures for property described in clause (il) of the last sentence of subsection (c) (1), if the amount of such assessment paid or incurred by the taxpayer during the taxable year (determined without the application of this paragraph) is in excess of an amount equal to 10 percent of the aggregate amounts which have been and will be assessed as the taxpayer's share of the expenditures by the district for such property, and if such excess is more than $500, the entire excess shall be treated as paid or incurred ratably over each of the 9 succeeding taxable years.

(2) Disposition of land during 9-year period.

If paragraph (1) applies to an assessment and the land with respect to which such assessment was made is sold or otherwise disposed of by the taxpayer (other than by the reason of his death) during the 9 succeeding taxable years, any amount of the excess described in paragraph (1) which has not been treated as paid or incurred for a taxable year ending on or before the sale or other disposition shall be added to the adjusted basis of such land immediately prior to its sale or other disposition and shall not thereafter be treated as paid or incurred ratably under paragraph (1). (3) Disposition by reason of death.

If paragraph (1) applies to an assessment and the taxpayer dies during the 9 succeeding taxable years, any amount of the excess described in paragraph (1) which has not been treated as paid or incurred for a taxable year ending before his death shall be treated as paid or incurred in the taxable year in which he dies.

(Aug. 16, 1954, ch. 736, 68A Stat. 67; Oct. 22, 1968, Pub. L. 90-630, § 5(a), (b), 82 Stat. 1329.)

AMENDMENTS

1968-Subsec. (c) (1). Pub. L. 90-630, § 5(a), in the material following subpar. (B), designated as cl. (1) existing provisions covering amounts which, if paid or incurred by the taxpayer, would wthout regard to the exception constitute deductible expenditures, and added cl. (i). Subsec. (f). Pub. L. 90-630, § 5(b), added subsec. (f).

EFFECTIVE DATE OF 1968 AMENDMENT

Section 5(c) of Pub. L. 90-630 provided that: "The amendments made by subsections (a) and (b) [amending subsec. (c) (i) and adding subsec. (f) of this section] shall apply to assessments levied after the date of the enactment of this Act [Oct. 22, 1968] in taxable years ending after such date."

CROSS REFERENCES

Exception from denial of deduction for capital expenditures, see section 263 (a) (1) (c) of this title. Trade or business expenses deductible, see section 162 of this title.

SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 263, 1251, 1252 of this title.

2. Interest on Certain Governmental Obligations

26 U.S.C. 103

§ 103. Interest on certain governmental obligations.

(a) General rule.

Gross income does not include interest on

(1) the obligations of a State, a Territory, or a possession of the United States, or any political subdivision of any of the foregoing, or of the District of Columbia;

(2) the obligations of the United States; or

(3) the obligations of a corporation organized under Act of Congress, if such corporation is an instrumentality of the United States and if under the respective Acts authorizing the issue of the obligations the interest is wholly exempt from the taxes imposed by this subtitle.

(b) Exception.

Subsection (a) (2) shall not apply to interest on obligations of the United States issued after September 1, 1917 (other than postal savings certificates of deposit, to the extent they represent deposits made before March 1, 1941), unless under the respective Acts authorizing the issuance thereof such interest is wholly exempt from the taxes imposed by this subtitle.

(c) Industrial development bonds.

(1) Subsection (a)(1) not to apply.

Except as otherwise provided in this subsection, any industrial development bond shall be treated as an obligation not described in subsection (a) (1). (2) Industrial development bond.

For purposes of this subsection, the term "industrial development bond" means any obligation

(A) which is issued as part of an issue all or a major portion of the proceeds of which are to be used directly or indirectly in any trade or business carried on by any person who is not an exempt person (within the meaning of paragraph (3)), and

(B) the payment of the principal or interest on which (under the terms of such obligation or any underlying arrangement) is, in whole or in major part

(1) secured by any interest in property used or to be used in a trade or business or in payments in respect of such property, or

(ii) to be derived from payments in respect of property, or borrowed money, used or to be used in a trade or business.

(3) Exempt person.

For purposes of paragraph (2) (A), the term "exempt person" means

(A) a governmental unit, or

(B) an organization described in section 501 (c) (3) and exempt from tax under section 501 (a) (but only with respect to a trade or business carried on by such organization which is not an unrelated trade or business, determined by applying section 513 (a) to such organization).

(4) Certain exempt activities.

Paragraph (1) shall not apply to any obligation which is issued as part of an issue substantially all of the proceeds of which are to be used to provide

(A) residential real property for family units, (B) sports facilities,

(C) convention or trade show facilities,

(D) airports, docks, wharves, mass commuting facilities, parking facilities, or storage or training facilities directly related to any of the foregoing,

(E) sewage or solid waste disposal facilities or facilities for the local furnishing of electric energy, gas, or water, or

(F) air or water pollution control facilities. (5) Industrial parks.

Paragraph (1) shall not apply to any obligation issued as part of an issue substantially all of the proceeds of which are to be used for the acquisition or development of land as the site for an industrial park. For purposes of the preceding sentence, the term "development of land" includes the provision of water, sewage, drainage, or similar facilities, or of transportation, power, or communication facilities, which are incidental to use of the site as an industrial park, but, except wth respect to such facilities, does not include the provision of structures or buildings.

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1969

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Subsec. (d). Pub. L. 91-172 added subsec. (d). Former subsec. (d) redesignated (e).

Subsec. (e). Pub. L. 91-172 redesignated former subsec. (d) as (e).

1968 Subsec. (c). Pub. L. 90-364 added subsec. (c). Former subsec. (c) redesignated (d).

Subsec. (c) (6) (D)—(H). Pub. L. 90-634 added subsec. (c) (6) (D)—(H).

Subsec. (d). Pub. L. 90-364 redesignated former subsec. (c) as (d).

EFFECTIVE DATE OF 1969 AMENDMENT

Section 601 (b) of Pub. L. 91-172 provided that: "The amendments made by subsection (a) [amending this section] shall apply with respect to obligations issued after October 9, 1969."

EFFECTIVE DATE OF 1968 AMENDMENTS Section 401(b) of Pub. L. 90-634 provided that: "The amendment made by subsection (a) [amending this section] shall apply with respect to obligations issued after the date of the enactment of this Act [Oct. 24, 1968]."

Section 107(b)(1) of Pub. L. 90-364 provided that: "Except as provided by paragraph (2) [set out as a note below], the amendment made by subsection (a) [adding subsec. (c) of this section] shall apply to taxable years ending after April 30, 1968, but only with respect to obligations issued after such date."

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