Internal Revenue Code · 26 U.S.C.
§ 535. Accumulated taxable income
Official text, no changes From the Office of the Law Revision Counsel, release point 119-121 (current through Public Law 119-121 (October 9, 2026)). Compare it with the official text at uscode.house.gov (external site).
Cite as 26 U.S.C. § 535
At a glance
Read from the text, the source credit and the official notes. Not part of the law.
- Status
- In force
- Enacted
- September 2, 1958 by Pub. L. 85–866
- Last amended
- December 22, 2017 by Pub. L. 115–97
- Amendments
- 14 dated changes in the source credit
- Length
- 4 subsections · 1,475 words · about 6 min to read
- Defines
- 3 terms
- Cross-references
- cites 14; cited by 4 Code sections and 10 other regulations
- Regulations
- 3 issued under this section
For purposes of this subtitle, the term “accumulated taxable income” means the taxable income, adjusted in the manner provided in subsection (b), minus the sum of the dividends paid deduction (as defined in section 561) and the accumulated earnings credit (as defined in subsection (c)).
There shall be allowed as a deduction Federal income and excess profits taxes and income, war profits, and excess profits taxes of foreign countries and possessions of the United States (to the extent not allowable as a deduction under section 275(a)(4)), accrued during the taxable year or deemed to be paid by a domestic corporation under section 960 for the taxable year, but not including the accumulated earnings tax imposed by section 531 or the personal holding company tax imposed by section 541.
The deduction for charitable contributions provided under section 170 shall be allowed without regard to section 170(b)(2).
The special deductions for corporations provided in part VIII (except section 248) of subchapter B (section 241 and following, relating to the deduction for dividends received by corporations, etc.) shall not be allowed.
The net operating loss deduction provided in section 172 shall not be allowed.
Except as provided in subparagraph (B), there shall be allowed as a deduction an amount equal to the net capital loss for the taxable year (determined without regard to paragraph (7)(A)).
The net capital loss for any taxable year shall be treated as a short-term capital loss in the next taxable year.
No allowance shall be made for the capital loss carryback or carryforward provided in section 1212.
There shall be allowed as a deduction the net short-term capital gain for the taxable year to the extent such gain does not exceed the amount of any capital loss carryover to such taxable year under section 1212 (determined without regard to paragraph (7)(B)).
For purposes of subchapter C, the accumulated earnings and profits at any time shall not be less than they would be if this subsection had applied to the computation of earnings and profits for all taxable years beginning after July 18, 1984.
In the case of a foreign corporation, paragraph (6) shall be applied by taking into account only gains and losses which are effectively connected with the conduct of a trade or business within the United States and are not exempt from tax under treaty.
There shall be allowed as a deduction the amount of the corporation’s income for the taxable year which is included in the gross income of a United States shareholder under section 951(a). In the case of any corporation the accumulated taxable income of which would (but for this sentence) be determined without allowance of any deductions, the deduction under this paragraph shall be allowed and shall be appropriately adjusted to take into account any deductions which reduced such inclusion.
For purposes of subsection (a), in the case of a corporation other than a mere holding or investment company the accumulated earnings credit is (A) an amount equal to such part of the earnings and profits for the taxable year as are retained for the reasonable needs of the business, minus (B) the deduction allowed by subsection (b)(6). For purposes of this paragraph, the amount of the earnings and profits for the taxable year which are retained is the amount by which the earnings and profits for the taxable year exceed the dividends paid deduction (as defined in section 561) for such year.
The credit allowable under paragraph (1) shall in no case be less than the amount by which $250,000 exceeds the accumulated earnings and profits of the corporation at the close of the preceding taxable year.
In the case of a corporation the principal function of which is the performance of services in the field of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting, subparagraph (A) shall be applied by substituting “$150,000” for “$250,000”.
In the case of a corporation which is a mere holding or investment company, the accumulated earnings credit is the amount (if any) by which $250,000 exceeds the accumulated earnings and profits of the corporation at the close of the preceding taxable year.
For purposes of paragraphs (2) and (3), the accumulated earnings and profits at the close of the preceding taxable year shall be reduced by the dividends which under section 563(a) (relating to dividends paid after the close of the taxable year) are considered as paid during such taxable year.
For limitation on credit provided in paragraph (2) or (3) in the case of certain controlled corporations, see section 1561.
The term “United States-owned foreign corporation” has the meaning given to such term by section 904(h)(6).
(Aug. 16, 1954, ch. 736, 68A Stat. 180; Pub. L. 85–866, title I, § 31, title II, § 205(a), Sept. 2, 1958, 72 Stat. 1631, 1680; Pub. L. 87–403, § 3(b), Feb. 2, 1962, 76 Stat. 6; Pub. L. 87–834, § 9(d)(2), Oct. 16, 1962, 76 Stat. 1001; Pub. L. 88–272, title II, § 207(b)(4), Feb. 26, 1964, 78 Stat. 42; Pub. L. 91–172, title IV, § 401(b)(2)(C), title V, § 512(f)(5), (6), Dec. 30, 1969, 83 Stat. 602, 641; Pub. L. 94–12, title III, § 304(a), Mar. 29, 1975, 89 Stat. 45; Pub. L. 94–455, title X, § 1033(b)(3), title XIX, §§ 1901(a)(74), (b)(20)(A), (32)(C), (33)(D), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1628, 1777, 1797, 1800, 1801, 1834; Pub. L. 97–34, title II, § 232(a), (b)(1), Aug. 13, 1981, 95 Stat. 250; Pub. L. 98–369, div. A, title I, §§ 58(b), 125(a), July 18, 1984, 98 Stat. 575, 647; Pub. L. 99–514, title XII, § 1225(a), title XVIII, § 1899A(17), Oct. 22, 1986, 100 Stat. 2558, 2959; Pub. L. 101–508, title XI, § 11801(c)(18), Nov. 5, 1990, 104 Stat. 1388–528; Pub. L. 108–357, title IV, § 402(b)(1), Oct. 22, 2004, 118 Stat. 1492; Pub. L. 109–135, title IV, § 403(n)(2), Dec. 21, 2005, 119 Stat. 2626; Pub. L. 113–295, div. A, title II, § 221(a)(64), Dec. 19, 2014, 128 Stat. 4048; Pub. L. 115–97, title I, §§ 13001(b)(5)(B), 14301(c)(4), Dec. 22, 2017, 131 Stat. 2098, 2222.)
Terms defined here
Where the text says “the term … means”. Select a term to jump to its definition.
Regulations under this section
Treasury regulations (26 CFR) issued under § 535
Cross-references
Computed from the citations in the text of Title 26 and 26 CFR.
This section cites 14 other sections
- § 561 Definition of deduction for dividends paid
- § 275(a)(4) Certain taxes
- § 960 Deemed paid credit for subpart F inclusions
- § 531 Imposition of accumulated earnings tax
- § 541 Imposition of personal holding company tax
- § 170 Charitable, etc., contributions and gifts
- § 248 Organizational expenditures
- § 241 Allowance of special deductions
- § 172 Net operating loss deduction
- § 1212 Capital loss carrybacks and carryovers
- § 951(a) Amounts included in gross income of United States shareholders
- § 563(a) Rules relating to dividends paid after close of taxable year
- § 1561 Limitation on accumulated earnings credit in the case of certain controlled corporations
- § 904(h)(6) Limitation on credit
Cited by 4 Code sections
- § 531 Imposition of accumulated earnings tax
- § 631(c) Gain or loss in the case of timber, coal, or domestic iron ore
- § 951A(d)(1)(A) Net CFC tested income included in gross income of United States shareholders
- § 1561(a) Limitation on accumulated earnings credit in the case of certain controlled corporations
Cited in 10 regulations not issued under it
- § 1.243-5 Effect of election.
- § 1.269-3 Instances in which section 269(a) disallows a deduction, credit, or other allowance.
- § 1.531-1 Imposition of tax.
- § 1.534-1 Burden of proof as to unreasonable accumulations generally.
- § 1.536-1 Short taxable years.
- § 1.561-1 Deduction for dividends paid.
- § 1.565-1 General rule.
- § 1.894-1 Income affected by treaty.
- § 1.1502-43 Consolidated accumulated earnings tax.
- § 1.1551-1 Disallowance of surtax exemption and accumulated earnings credit.
Amendment history
From the source credit and the official notes, newest first.
- Amended by Pub. L. 115–97Parts changed in 2017: (b)(1) (c)(5)
- Amended by Pub. L. 113–295Parts changed in 2014: (b)(1)
- Amended by Pub. L. 109–135Parts changed in 2005: (b)(10)
- Amended by Pub. L. 108–357Parts changed in 2004: (d)(2)
- Amended by Pub. L. 101–508Parts changed in 1990: (c)(5)
- Amended by Pub. L. 99–514Parts changed in 1986: (b)(5)(C)(i) (b)(9)
- Amended by Pub. L. 98–369Parts changed in 1984: (b)(5) (b)(6) (b)(7) (b)(8) (d)
- Amended by Pub. L. 97–34Parts changed in 1981: (c)(2) (c)(3)
- Amended by Pub. L. 94–455Parts changed in 1976: (b)(1) (b)(6) (b)(8) (b)(9)
- Amended by Pub. L. 94–12Parts changed in 1975: (c)(2)
- Amended by Pub. L. 91–172Parts changed in 1969: (b)(6) (b)(7) (c)(5)
- Amended by Pub. L. 88–272Parts changed in 1964: (b)(1)
- Amended by Pub. L. 87–834Parts changed in 1962: (b)(1) (b)(9)
- Amended by Pub. L. 87–403
- Enacted by Pub. L. 85–866Parts changed in 1958: (b)(2) (b)(6)(B) (c)(2)
Where it sits in the Code
- Subtitle A Income Taxes
- Chapter 1 NORMAL TAXES AND SURTAXES
- Subchapter G Corporations Used to Avoid Income Tax on Shareholders
- Part I CORPORATIONS IMPROPERLY ACCUMULATING SURPLUS
Nearby sections
Official notes
Show the Law Revision Counsel's notes (amendments, effective dates)
Editorial Notes
Amendments
2017—Subsec. (b)(1). Pub. L. 115–97, § 14301(c)(4), substituted “section 960” for “section 902(a) or 960(a)(1)”.
Subsec. (c)(5). Pub. L. 115–97, § 13001(b)(5)(B), amended par. (5) generally. Prior to amendment, text read as follows: “For denial of credit provided in paragraph (2) or (3) where multiple corporations are formed to avoid tax, see section 1551, and for limitation on such credit in the case of certain controlled corporations, see section 1561.”
2014—Subsec. (b)(1). Pub. L. 113–295 substituted “section 531 or the personal holding company tax imposed by section 541.” for “section 531, the personal holding company tax imposed by section 541, or the taxes imposed by corresponding sections of a prior income tax law.”
2005—Subsec. (b)(10). Pub. L. 109–135 added par. (10).
2004—Subsec. (d)(2). Pub. L. 108–357 substituted “section 904(h)(6)” for “section 904(g)(6)”.
1990—Subsec. (c)(5). Pub. L. 101–508 substituted “section 1561” for “sections 1561 and 1564”.
1986—Subsec. (b)(5)(C)(i), (8)(C). Pub. L. 99–514, § 1899A(17), substituted “July 18, 1984” for “the date of the enactment of the Tax Reform Act of 1984”.
Subsec. (b)(9). Pub. L. 99–514, § 1225(a), added par. (9).
1984—Subsec. (b)(5). Pub. L. 98–369, § 58(b), designated existing provisions as subpar. (A), substituted “Except as provided in subparagraph (B), there shall be allowed as a deduction an amount equal to the net capital loss for the taxable year (determined without regard to paragraph (7)(A)” for “There shall be allowed as deductions losses from sales or exchanges of capital assets during the taxable year which are disallowed as deductions under section 1211(a)” in subpar. (A) as so redesignated, and added subpars. (B) and (C).
Subsec. (b)(6). Pub. L. 98–369, § 58(b), divided existing par. (6) into subpars. (A) and (B) and substituted references to the application of paragraph (7) for references to capital loss carryback and carryover provided in section 1212.
Subsec. (b)(7). Pub. L. 98–369, § 58(b), substituted “Capital loss carryovers” for “Capital loss” in heading, redesignated existing provisions as subpar. (B), and added subpar. (A).
Subsec. (b)(8). Pub. L. 98–369, § 58(b), added par. (8).
Subsec. (d). Pub. L. 98–369, § 125(a), added subsec. (d).
1981—Subsec. (c)(2). Pub. L. 97–34, § 232(a), designated existing provisions as subpar. (A), substituted “$250,000” for “$150,000”, and added subpar. (B).
Subsec. (c)(3). Pub. L. 97–34, § 232(b)(1), substituted “$250,000” for “$150,000”.
1976—Subsec. (b)(1). Pub. L. 94–455, §§ 1033(b)(3), 1901(a)(74), struck out “(other than the excess profits tax imposed by subchapter E of chapter 2 of the Internal Revenue Code of 1939 for taxable years beginning after December 31, 1940)” after “income and excess profits taxes”, and substituted “section 902(a) or 960(a)(1)” for “section 902(a)(1) or 960(a)(1)(C)” after “domestic corporation under”.
Subsec. (b)(6). Pub. L. 94–455, § 1901(b)(33)(D), substituted “Net” for “Long-term” after “(6)”.
Subsec. (b)(8). Pub. L. 94–455, § 1901(b)(20)(A), struck out par. (8) relating to allowance of deduction by bank affiliates.
Subsec. (b)(9), (10). Pub. L. 94–455, § 1901(b)(32)(C), struck out par. (9) relating to allowance of deduction for distributions of divested stock, and struck out par. (10) relating to special adjustment on disposition of antitrust stock received as a dividend.
1975—Subsec. (c)(2), (3). Pub. L. 94–12 substituted “$150,000” for “$100,000”.
1969—Subsec. (b)(6). Pub. L. 91–172, § 512(f)(5), substituted “capital loss carryback or carryover” for “capital loss carryover” and “capital loss carryback and carryover” for “capital loss carryover” in subpar. (B).
Subsec. (b)(7). Pub. L. 91–172, § 512(f)(6), substituted “Capital loss” for “Capital loss carryover” in heading and “capital loss carryback or carryover” for “capital loss carryover” in text.
Subsec. (c)(5). Pub. L. 91–172, § 401(b)(2)(C), substituted “section 1551, and for limitation on such credit in the case of certain controlled corporations, see sections 1561 and 1564” for “section 1551”.
1964—Subsec. (b)(1). Pub. L. 88–272 substituted “section 275(a)(4)” for “section 164(b)(6)”.
1962—Subsec. (b)(1). Pub. L. 87–834 substituted “accrued during the taxable year or deemed to be paid by a domestic corporation under section 902(a)(1) or 960(a)(1)(C) for the taxable year” for “accrued during the taxable year”.
Subsec. (b)(9), (10). Pub. L. 87–403 added pars. (9) and (10).
1958—Subsec. (b)(2). Pub. L. 85–866, § 31(a), struck out “the limitation in” after “without regard to”.
Subsec. (b)(6)(B). Pub. L. 85–866, § 31(a), substituted “in taxable income the excess of the net long-term capital gain for the taxable year over the net short-term capital loss for such year (determined without regard to the capital loss carryover provided in section 1212)” for “such excess in taxable income”.
Subsec. (c)(2), (3). Pub. L. 85–866, § 205(a), substituted “$100,000” for “$60,000”.
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Amendment by section 13001(b)(5)(B) of Pub. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, see section 13001(c)(1) of Pub. L. 115–97, set out as a note under section 11 of this title.
Amendment by section 14301(c)(4) of Pub. L. 115–97 applicable to taxable years of foreign corporations beginning after Dec. 31, 2017, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end, see section 14301(d) of Pub. L. 115–97, set out as a note under section 78 of this title.
Effective Date of 2014 Amendment
Amendment by Pub. L. 113–295 effective Dec. 19, 2014, subject to a savings provision, see section 221(b) of Pub. L. 113–295, set out as a note under section 1 of this title.
Effective Date of 2005 Amendment
Amendment by Pub. L. 109–135 effective as if included in the provision of the American Jobs Creation Act of 2004, Pub. L. 108–357, to which such amendment relates, see section 403(nn) of Pub. L. 109–135, set out as a note under section 26 of this title.
Effective Date of 2004 Amendment
Pub. L. 108–357, title IV, § 402(c), Oct. 22, 2004, 118 Stat. 1492, provided that: “The amendments made by this section [amending this section and sections 904 and 936 of this title] shall apply to losses for taxable years beginning after December 31, 2006.”
Effective Date of 1986 Amendment
Pub. L. 99–514, title XII, § 1225(c), Oct. 22, 1986, 100 Stat. 2559, as amended by Pub. L. 100–647, title I, § 1012(k), Nov. 10, 1988, 102 Stat. 3513, provided that: “The amendments made by this section [amending this section and section 545 of this title] shall apply to gains and losses realized on or after January 1, 1986.”
Effective Date of 1984 Amendment
Amendment by section 58(b) of Pub. L. 98–369 applicable to taxable years beginning after July 18, 1984, see section 58(c) of Pub. L. 98–369, set out as a note under section 532 of this title.
Pub. L. 98–369, div. A, title I, § 125(b), July 18, 1984, 98 Stat. 647, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
“(1) In general.— Except as provided in paragraph (2), the amendment made by subsection (a) [amending this section] shall apply to distributions and interest payments received by a United States-owned foreign corporation (within the meaning of section 535(d) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]) on or after May 23, 1983, in taxable years ending on or after such date.“(2) Corporations in existence on may 23, 1983.— In the case of a United States-owned foreign corporation (as so defined) in existence on May 23, 1983, the amendment made by subsection (a) shall apply to taxable years beginning after December 31, 1984.”
Effective Date of 1981 Amendment
Pub. L. 97–34, title II, § 232(c), Aug. 13, 1981, 95 Stat. 250, provided that: “The amendments made by this section [amending this section and sections 243, 1551, and 1561 of this title] shall apply to taxable years beginning after December 31, 1981.”
Effective Date of 1976 Amendment
For effective date of amendment by section 1033(b)(3) of Pub. L. 94–455, see section 1033(c) of Pub. L. 94–455, set out as a note under section 960 of this title.
Amendment by section 1901(a)(74), (b)(20)(A), (32)(C), (33)(D) of Pub. L. 94–455 applicable with respect to 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.
Effective Date of 1975 Amendment
Pub. L. 94–12, title III, § 305(c), Mar. 29, 1975, 89 Stat. 45, provided that: “The amendments made by section 304 [amending this section and sections 243, 1551, and 1561 of this title] apply to taxable years beginning after December 31, 1974.”
Effective Date of 1969 Amendment
Amendment by section 401(b)(2)(C) of Pub. L. 91–172 applicable with respect to taxable years beginning after Dec. 31, 1969, see section 401(h)(2) of Pub. L. 91–172, set out as a note under section 1561 of this title.
Amendment by section 512(f)(5), (6) of Pub. L. 91–172 applicable with respect to net capital losses sustained in taxable years beginning after Dec. 31, 1969, see section 512(g) of Pub. L. 91–172, set out as a note under section 1212 of this title.
Effective Date of 1964 Amendment
Amendment by Pub. L. 88–272 applicable to taxable years beginning after Dec. 31, 1963, see section 207(c) of Pub. L. 88–272, set out as a note under section 164 of this title.
Effective Date of 1962 Amendments
Amendment by Pub. L. 87–834 applicable in respect of any distribution received by a domestic corporation after Dec. 31, 1964, and in respect of any distribution received by a domestic corporation before Jan. 1, 1965, in a taxable year of such corporation beginning after Dec. 31, 1962, but only to the extent that such distribution is made out of the accumulated profits of a foreign corporation for a taxable year (of such foreign corporation) beginning after Dec. 31, 1962, see section 9(e) of Pub. L. 87–834, set out as an Effective Date note under section 78 of this title.
Amendment by Pub. L. 87–403 applicable only with respect to distributions made after Feb. 2, 1962, see section 3(g) of Pub. L. 87–403, set out as a note under section 312 of this title.
Effective Date of 1958 Amendment
Amendment by section 31 of Pub. L. 85–866 applicable to taxable years beginning after Dec. 31, 1953, and ending after Aug. 16, 1954, 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 II, § 205(b), Sept. 2, 1958, 72 Stat. 1680, provided that: “The amendments made by subsection (a) [amending this section and section 1551 of this title] shall apply with respect to taxable years beginning after December 31, 1957.”
Savings Provision
For provisions that nothing in amendment by Pub. L. 101–508 be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to Nov. 5, 1990, for purposes of determining liability for tax for periods ending after Nov. 5, 1990, see section 11821(b) of Pub. L. 101–508, set out as a note under section 45K of this title.
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of Pub. L. 99–514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. L. 99–514, as amended, set out as a note under section 401 of this title.