Internal Revenue Code · 26 U.S.C.
§ 537. Reasonable needs of the business
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. § 537
At a glance
Read from the text, the source credit and the official notes. Not part of the law.
- Status
- In force
- Enacted
- December 30, 1969 by Pub. L. 91–172
- Last amended
- December 22, 2017 by Pub. L. 115–97
- Amendments
- 4 dated changes in the source credit
- Length
- 2 subsections · 465 words · about 2 min to read
- Defines
- 2 terms
- Cross-references
- cites 3; cited by 0 Code sections and 3 other regulations
- Regulations
- 3 issued under this section
The term “section 303 redemption needs” means, with respect to the taxable year of the corporation in which a shareholder of the corporation died or any taxable year thereafter, the amount needed (or reasonably anticipated to be needed) to make a redemption of stock included in the gross estate of the decedent (but not in excess of the maximum amount of stock to which section 303(a) may apply).
In applying paragraphs (1) and (2), the discharge of any obligation incurred to make a redemption described in such paragraphs shall be treated as the making of such redemption.
The accumulation of reasonable amounts for the payment of reasonably anticipated product liability losses (as defined in section 172(f) (as in effect before the date of enactment of the Tax Cuts and Jobs Act)), as determined under regulations prescribed by the Secretary, shall be treated as accumulated for the reasonably anticipated needs of the business.
The application of this part to any taxable year before the first taxable year specified in paragraph (1) shall be made without regard to the fact that distributions in redemption coming within the terms of such paragraphs were subsequently made.
(Aug. 16, 1954, ch. 736, 68A Stat. 182; Pub. L. 91–172, title IX, § 906(a), Dec. 30, 1969, 83 Stat. 714; Pub. L. 94–455, title XIX, § 1901(a)(75), Oct. 4, 1976, 90 Stat. 1777; Pub. L. 95–600, title III, § 371(c), Nov. 6, 1978, 92 Stat. 2859; Pub. L. 104–188, title I, § 1704(t)(33), Aug. 20, 1996, 110 Stat. 1889; Pub. L. 115–97, title I, § 13302(c)(2)(B), Dec. 22, 2017, 131 Stat. 2123.)
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 § 537
Cross-references
Computed from the citations in the text of Title 26 and 26 CFR.
This section cites 3 other sections
- § 303 Distributions in redemption of stock to pay death taxes
- § 4943(c)(5) Taxes on excess business holdings
- § 172(f) Net operating loss deduction
Cited in 3 regulations not issued under it
Amendment history
From the source credit and the official notes, newest first.
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
- § 533 Evidence of purpose to avoid income tax
- § 534 Burden of proof
- § 535 Accumulated taxable income
- § 536 Income not placed on annual basis
- § 537 Reasonable needs of the business
Official notes
Show the Law Revision Counsel's notes (amendments, effective dates)
Editorial Notes
References in Text
Section 172(f), referred to in subsec. (b)(4), was repealed by Pub. L. 115–97, title I, § 13302(c)(2)(A), Dec. 22, 2017, 131 Stat. 2122.
The date of the enactment of the Tax Cuts and Jobs Act, referred to in subsec. (b)(4), probably means the date of enactment of title I of Pub. L. 115–97, which was approved Dec. 22, 2017. Prior versions of the bill that was enacted into law as Pub. L. 115–97 included such Short Title, but it was not enacted as part of title I of Pub. L. 115–97.
Amendments
2017—Subsec. (b)(4). Pub. L. 115–97 inserted “(as in effect before the date of enactment of the Tax Cuts and Jobs Act)” after “as defined in section 172(f)”.
1996—Subsec. (b)(4). Pub. L. 104–188 substituted “section 172(f)” for “section 172(i)”.
1978—Subsec. (b)(4), (5). Pub. L. 95–600 added par. (4) and redesignated former par. (4) as (5).
1976—Subsec. (b)(2). Pub. L. 94–455, § 1901(a)(75)(A), struck out “with respect to taxable years of the corporation ending after May 26, 1969” after “ ‘redemption needs’ means”.
Subsec. (b)(4). Pub. L. 94–455, § 1901(a)(75)(B), struck out “or (2)” after “paragraph (1)”.
1969—Pub. L. 91–172 designated existing provisions as subsec. (a)(1) and added subsecs. (a)(2), (3) and (b).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Amendment by Pub. L. 115–97 applicable to net operating losses arising in taxable years beginning after Dec. 31, 2017, see section 13302(e) of Pub. L. 115–97, set out as a note under section 172 of this title.
Effective Date of 1978 Amendment
Amendment by Pub. L. 95–600 applicable with respect to taxable years beginning after Sept. 30, 1979, see section 371(d) of Pub. L. 95–600, set out as a note under section 172 of this title.
Effective Date of 1976 Amendment
Amendment by 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 1969 Amendment
Pub. L. 91–172, title IX, § 906(b), Dec. 30, 1969, 83 Stat. 715, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: “The amendment made by subsection (a) [amending this section] shall apply to the tax imposed under section 531 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] with respect to taxable years ending after May 26, 1969.”