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TITLE 26-INTERNAL REVENUE CODE "(1) who was allowed a deduction under section 165 of the Internal Revenue Code of 1954 (relating to losses) [this section] for a loss attributable to a di- saster occurring during calendar year 1972 which was determined by the President, under section 102 of the Disaster Relief Act of 1970, to warrant disas- ter assistance by the Federal Government. "(2) who in connection with such disaster- "(A) received income in the form of cancellation of a disaster loan under section 7 of the Small Business Act (section 636 cf Title 15, Commerce and Trade] or an emergency loan under subtitle C of the Consolidated Farm and Rural Development Act [section 1961 et seq. of Title 7, Agriculture], or "(B) received income in the form of compensa- tion (not taken into account in computing the amount of the deduction) for such loss in settle- ment of any claim of the taxpayer against a person for that person's liability In tort for the damage or destruction of that taxpayer's property in connec- tion with the disaster, and "(3) who elects (at such time and in such manner as the Secretary of the Treasury or his delegate may by regulations prescribe) to take the benefits of this section. "(b) Effect of election.-In the case of any individual to whom this section applies- "(1) the tax imposed by chapter 1 of the Internal Revenue Code of 1954 [this title] for the taxable year in which the income taken into account is re- ceived or accrued which is attributable to such income shall not exceed the additional tax under such chapter which would have been payable for the year in which the deduction for the loss was taken if such deduction had not been taken for such year, "(2) any amount of tax imposed by chapter 1 at- tributable to the income taken into account which, on October 1, 1975, was unpaid may be paid in 3 equal annual installments (with the first such in- stallment due and payable on April 15, 1977), and "(3) no interest on any deficiency shall be payable for any period before April 16, 1977, to the extent such deficiency is attributable to the receipt of such compensation, and no interest on any installment re- ferred to in paragraph (2) shall be payable for any period before the due date of such installment. "(c) Income taken into account.-For purposes of this section, the income taken into account is- "(1) in the case of an individual described in sub- section (a)(2)(A), the amount of income (not in excess of $5,000) attributable to the cancellation of a disaster loan under section 7 of the Small Business Act or an emergency loan under subtitle C of the Consolidated Farm and Rural Development Act re- ceived by reason of the disaster described in subsec- tion (a)(1), or "(2) in the case of an individual described in sub- section (a)(2)(B), the amount of compensation (not in excess of $5,000) for the loss in settlement of any claim of the taxpayer against a person for that per- son's liability in tort for the damage or destruction of that taxpayer's property in connection with the disaster described in subsection (a)(1). "(d) Phaseout where adjusted gross income exceeds $15,000.-If for the taxable year for which the deduc- tion for the loss was taken the individual's adjusted gross income exceeded $15,000, the $5,000 limit set forth In paragraph (1) or (2) of subsection (c) (which- ever applies) shall be reduced by one dollar for each full dollar that such adjusted gross income exceeds $15,000. In the case of a married individual filing a separate return, the preceding sentence shall be ap- plied by substituting '$7,500' for '$15,000'. "(e) Statute of limitations.-If refund or credit of any overpayment of income tax resulting from an elec- tion made under this section is prevented on the date of the enactment of this Act [Oct. 4, 1976], or at any time within one year after such date, by the operation of any law. or rule of law, refund or credit of such overpayment (to the extent attributable to such elec- tion) may, nevertheless, be made or allowed if claim therefor is filed within one year after such date. If the taxpayer makes an election under this section and if assessment of any deficiency for any taxable year re- sulting from such election is prevented on the date of the enactment of this Act (Oct. 4, 1976], or at any time within one year after such date, by the operation of any law or rule of law, such assessment (to the extent attributable to such election) may, neverthe- less, be made if made within one year after such date." REUND OR CREDIT Or OVERPAYMENT; TIME FOR FILING CLAIM; INTEREST Section l(b)(2) of Pub, L. 91-677 authorized refund or credit of overpayment attributable to the amend- ments made by subsec. (a) to subsec. (i) of this section if claim therefor was filed after Jan. 12, 1971, and before July 1, 1971, without interest for any period before Jan. 1, 1972. CROSS REFERENCES Adjusted gross income as gross income minus, among others, losses from sale or exchange of property, see section 62 of this title. General rules for determining capital losses, see sec- tion 1221 et seq. of this title. Loss deductions for nonresident alien individuals, see section 873 of this title. Losses in transactions between related taxpayers not deductible, see section 267 of this title. Special rules for determining capital losses, see sec- tion 1231 et seq. of this title. Treatment of capital losses, see section 1211 et seq. of this title. SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 44, 57, 62, 80, 103, 166, 172, 271, 272, 585, 593, 709, 873, 877, 931, 934, 1212, 1351, 6405, 6511 of this title. § 166. Bad debts (a) General rule (1) Wholly worthless debts There shall be allowed as a deduction any debt which becomes worthless within the tax- able year. (2) Partially worthless debts When satisfied that a debt is recoverable only in part, the Secretary may allow such debt, in an amount not in excess of the part charged off within the taxable year, as a de- duction. (b) Amount of deduction For purposes of subsection (a), the basis for determining the amount of the deduction for any bad debt shall be the adjusted basis pro- vided in section 1011 for determining the loss from the sale or other disposition of property. (c) Reserve for bad debts In lieu of any deduction under subsection (a), there shall be allowed (in the discretion of the Secretary) a deduction for a reasonable addi- tion to a reserve for bad debts. (d) Nonbusiness debts (1) General rule In the case of a taxpayer other than a cor- poration- (A) subsections (a) and (c) shall not apply to any nonbusiness debt; and (B) where any nonbusiness debt becomes worthless within the taxable year, the loss resulting therefrom shall be considered a loss from the sale or exchange, during the § 166 Page 150