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TITLE 26-INTERNAL REVENUE CODE (3) Certain regulated investment companies In the case of a regulated investment com- pany which distributes during the taxable year an exempt-interest dividend (including exempt-interest dividends paid after the close of the taxable year as described in section 855), that portion of any amount otherwise allowable as a deduction which the amount of the income of such company wholly exempt from taxes under this subtitle bears to the total of such exempt income and its gross income (excluding from gross income, for this purpose, capital gain net income, as defined in section 1222(9)). (4) Interest related to exempt-interest dividends Interest on indebtedness incurred or contin- ued to purchase or carry shares of stock of a regulated investment company which during the taxable year of the holder thereof distrib- utes exempt-interest dividends. (Aug. 16, 1954, ch. 736, 68A Stat. 78; Feb. 26, 1964, Pub. L. 88-272, title II, § 216(a), 78 Stat. 56; Oct. 4, 1976, Pub. L. 94-455, title XIX, §§ 1901(a)(37), 1906(b)(13)(A), title XXI, § 2137(e), 90 Stat. 1770, 1834, 1931.) ERENcEs IN TEXT The Investment Company Act of 1940, referred to in par. (2), is act Aug. 22, 1940, ch. 686, title I, 54 Stat. 789, as amended, which is classified generally to sub- chapter I (§80a-1 et seq.) of chapter 2D of Title 15, Commerce and Trade. Section 2(a)(15) of such Act is classified to section 80a-2 of Title 15. For complete classification of this Act to the Code, see section 80:i- 51 of Title 15 and Tables volume. AMENDMENTS 1976-Par. (2). Pub. L. 94-455, §§ 1901(a)(37), 1906(b)(13)(A). struck out "(other than obligations of the United States issued after September 24, 1917, and originally subscribed for by the taxpayer)" following "to purchase or carry obligations" rnd "or his dele- gate" following "Secretary". Pars. (3), (4). Pub. L. 94-455, § 2137(e), added pars. (3) and (4). 1964-Par. (2), Pub. L. 88-272 provided that interest on face-amount certificates issued by a face-amount certificate company, and interest on amounts received for the purchase of such certificates to be issued by such institution, shall not be considered interest on in- debtedness to purchase or carry obligations the inter- est on which is wholly exempt from the taxes under this subtitle, to the extent the average amount of such obligations held by such institution during the taxable year doesn't exceed 15 percent of the average total assets held by such institution during the taxable year. EFFECTIVE DATE OF 1976 AMEMrENT Amendment of par. (2) by section 1901(a)(37) of Pub. L. 94-455 effective for taxable years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L. 94-455, set out as an Effective Date of 1976 Amendment note under section 2 of this title. Amendment of pars. (3) and (4) by section 2137(e) of Pub. L. 94-455 effective for taxable years beginning after Dec. 31, 1975, see section 2137(e) of Pub. L. 94- 455, set out as an Effective Date of 1976 Amendments note under section 852 of this title. EFFECTIVE DATE OF 1964 AMENDME qT Section 216(b) of Pub. L. 88-272 provided that: "The amendment made by subsection (a) [to this section] shall apply with respect to taxable years ending after the date of the enactment of this Act [February 21, 1964]." CRoss RErcES Double deductions prohibited by certain insurance companies, see section 832 of this title. Interest paid deductible, see section 163 of this title. Tax-exempt interest relating to estates and trusts, see section 643 of this title. SECTION RsaIUMR TO IN OTHER SECTIONS This section is referred to in sections 163, 643, 861, 4940, 4942, 6362 of this title. § 266. Carrying charges No deduction shall be allowed for amounts paid or accrued for such taxes and carrying charges as, under regulations prescribed by the Secretary, are chargeable to capital account with respect to property, if the taxpayer elects, ih accordance with such regulations, to treat such taxes or charges as so chargeable. (Aug. 16, 1954, ch. 736, 68A Stat. 78; Oct. 4, 1976, Pub. L. 94-455, title XIX, § 1906(b)(13)(A), 90 Stat. 1834.) AMEDmENTs 1976-Pub. L. 94-455 struck out "or his .elegate" fol- lowing "Secretary". CRoss RznEREscs Adjustment to losses for carrying charges, see sec- tion 1016 of this title. Capital expenditures not deductible, see section 263 of this title. Interest paid deductible, see section 163 of this title. Taxes deductible, see section 164 of this title. SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 163, 189, 1016 of this title. § 267. Losses, expenses, and iiteret with respect to transactions between related taxpayers (a) Deductions disallowed No deduction shall be allowed- (1) Losses In respect of losses from sales or exchanges of property (other than losses in cases of dis- tributions in corporate liquidations), directly or indirectly, between persons specified within any one of the paragraphs of subsec- tion (b). (2) Unpaid expenses and interest In respect of expenses, otherwise deductible under section 162 or 212, or of interest, other- wise deductible under section 163,- (A) If within the period consisting of the taxable year of the taxpayer and 2 months after the close thereof (I) such ex- penses or interest are not paid, and (ii) the amount thereof is not includible in the gross income of the person to whom the payment is to be made; and (B) If, by reason of the method of ac- counting of the person to whom the pay- ment is to be made, the amount thereof is not, unless paid, includible in the gross income of such person for the taxable year in which or with which the taxable year of the taxpayer ends; and (C) If, at the close of the taxable year of the taxpayer or at any time within 2Y2 months thereafter, both the taxpayer and the person to whom the payment is to be Page 214