Certain cost-sharing payments

Gross income does not include the excludable portion of payments received under— For purposes of this section— The term “excludable portion” means that portion (or all) of a payment made to any person under any program described in subsection (a) which— The term “excludable portion” does not include that portion of any payment which is properly associated with an amount which is allowable as a deduction for the taxable year in which such amount is paid or incurred. The taxpayer may elect not to have this section (and section 1255) apply to any excludable portion (or portion thereof). Any election under paragraph (1) shall be made in the manner prescribed by the Secretary by regulations and shall be made not later than the due date prescribed by law (including extensions) for filing the return of tax under this chapter for the taxable year in which the payment was received or accrued. No deduction or credit shall be allowed with respect to any expenditure which is properly associated with any amount excluded from gross income under subsection (a). Notwithstanding any provision of section 1016 to the contrary, no adjustment to basis shall be made with respect to property acquired or improved through the use of any payment, to the extent that such adjustment would reflect any amount which is excluded from gross income under subsection (a).