republic-os/legal/us/code/title-26/chapter-1/section-537.md

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LegalText	26 U.S.C. § 537	Reasonable needs of the business	us	united_states_code	code_section	26	INTERNAL REVENUE CODE	1	NORMAL TAXES AND SURTAXES	537	26 U.S.C. § 537	current	119-100	2026-06-26	official	https://uscode.house.gov/download/releasepoints/us/pl/119/100/xml_usc26@119-100.zip	/us/usc/t26/s537	data/legal/raw/us/code/title-26/usc26.xml	aeb68dd56fddc8d380fa1e68081087e9c865c48b61c8f6fa72b524484e506b41	a261f094809116f42a96648a3d5eee80fa010379d67412551c21dd5c900b27f4	ac3604fa41b9fcb5b9379b5cdd4e4936409701b3ea9035e09d2dacda9c6addc7	2026-07-04	official	legal us-code

26 U.S.C. § 537 - Reasonable needs of the business

Text

(a) General rule For purposes of this part, the term “reasonable needs of the business” includes—

(1) the reasonably anticipated needs of the business,

(2) the section 303 redemption needs of the business, and

(3) the excess business holdings redemption needs of the business.

(b) Special rules For purposes of subsection (a)—

(1) Section 303 redemption needs 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).

(2) Excess business holdings redemption needs The term “excess business holdings redemption needs” means the amount needed (or reasonably anticipated to be needed) to redeem from a private foundation stock which—

(A) such foundation held on May 26, 1969 (or which was received by such foundation pursuant to a will or irrevocable trust to which section 4943(c)(5) applies), and

(B) constituted excess business holdings on May 26, 1969, or would have constituted excess business holdings as of such date if there were taken into account (i) stock received pursuant to a will or trust described in subparagraph (A), and (ii) the reduction in the total outstanding stock of the corporation which would have resulted solely from the redemption of stock held by the private foundation.

(3) Obligations incurred to make redemptions 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.

(4) Product liability loss reserves 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.

(5) No inference as to prior taxable years 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.)

Notes

Editorial Notes

References in TextSection 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.

Amendments2017—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 AmendmentAmendment 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 AmendmentAmendment 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 AmendmentAmendment 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 AmendmentPub. 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.”