Internal Revenue Code:Sec. 1361. S corporation defined
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Location in Internal Revenue Code
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter S - Tax Treatment of S Corporations and Their
Shareholders
PART I - IN GENERAL
Statute
Sec. 1361. S corporation defined
(a) S corporation defined
(1) In general
For purposes of this title, the term ''S corporation'' means,
with respect to any taxable year, a small business corporation
for which an election under section 1362(a) is in effect for such
year.
(2) C corporation
For purposes of this title, the term ''C corporation'' means,
with respect to any taxable year, a corporation which is not an S
corporation for such year.
(b) Small business corporation
(1) In general
For purposes of this subchapter, the term ''small business
corporation'' means a domestic corporation which is not an
ineligible corporation and which does not -
(A) have more than 100 shareholders,
(B) have as a shareholder a person (other than an estate, a
trust described in subsection (c)(2), or an organization
described in subsection (c)(6)) who is not an individual,
(C) have a nonresident alien as a shareholder, and
(D) have more than 1 class of stock.
(2) Ineligible corporation defined
For purposes of paragraph (1), the term ''ineligible
corporation'' means any corporation which is -
(A) a financial institution which uses the reserve method of
accounting for bad debts described in section 585,
(B) an insurance company subject to tax under subchapter L,
(C) a corporation to which an election under section 936
applies, or
(D) a DISC or former DISC.
(3) Treatment of certain wholly owned subsidiaries
(A) In general
Except as provided in regulations prescribed by the
Secretary, for purposes of this title -
(i) a corporation which is a qualified subchapter S
subsidiary shall not be treated as a separate corporation,
and
(ii) all assets, liabilities, and items of income,
deduction, and credit of a qualified subchapter S subsidiary
shall be treated as assets, liabilities, and such items (as
the case may be) of the S corporation.
(B) Qualified subchapter S subsidiary
For purposes of this paragraph, the term ''qualified
subchapter S subsidiary'' means any domestic corporation which
is not an ineligible corporation (as defined in paragraph (2)),
if -
(i) 100 percent of the stock of such corporation is held by
the S corporation, and
(ii) the S corporation elects to treat such corporation as
a qualified subchapter S subsidiary.
(C) Treatment of terminations of qualified subchapter S
subsidiary status
For purposes of this title, if any corporation which was a
qualified subchapter S subsidiary ceases to meet the
requirements of subparagraph (B), such corporation shall be
treated as a new corporation acquiring all of its assets (and
assuming all of its liabilities) immediately before such
cessation from the S corporation in exchange for its stock.
(D) Election after termination
If a corporation's status as a qualified subchapter S
subsidiary terminates, such corporation (and any successor
corporation) shall not be eligible to make -
(i) an election under subparagraph (B)(ii) to be treated as
a qualified subchapter S subsidiary, or
(ii) an election under section 1362(a) to be treated as an
S corporation,
before its 5th taxable year which begins after the 1st taxable
year for which such termination was effective, unless the
Secretary consents to such election.
(E) Information returns.--Except to the extent provided by the
Secretary, this paragraph shall not apply to part III of
subchapter A of chapter 61 (relating to information returns).
(c) Special rules for applying subsection (b)
(1) Members of a family treated as 1 shareholder.--
(A) In general.--For purposes of subsection
(b)(1)(A), there shall be treated as one shareholder--
(i) a husband and wife (and their estates),
and
(ii) all members of a family (and their
estates).
(B) Members of a family.--For purposes of this
paragraph--
(i) In general.--The term `members of a
family' means a common ancestor, any lineal
descendant of such common ancestor, and any spouse
or former spouse of such common ancestor or any
such lineal descendant.
(ii) Common ancestor.--An individual shall
not be considered to be a common ancestor if, on
the applicable date, the individual is more than 6
generations removed from the youngest generation
of shareholders who would (but for this
subparagraph) be members of the family. For
purposes of the preceding sentence, a spouse (or
former spouse) shall be treated as being of the
same generation as the individual to whom such
spouse is (or was) married.
(iii) Applicable date.--The term `applicable
date' means the latest of--
(I) the date the election under
section 1362(a) is made,
(II) the earliest date that an
individual described in clause (i) holds
stock in the S corporation, or
(III) October 22, 2004.
(C) Effect of adoption, etc.--Any legally adopted
child of an individual, any child who is lawfully placed
with an individual for legal adoption by the individual,
and any eligible foster child of an individual (within
the meaning of section 152(f)(1)(C)), shall be treated
as a child of such individual by blood.
(2) Certain trusts permitted as shareholders
(A) In general
For purposes of subsection (b)(1)(B), the following trusts
may be shareholders:
(i) A trust all of which is treated (under subpart E of
part I of subchapter J of this chapter) as owned by an
individual who is a citizen or resident of the United States.
(ii) A trust which was described in clause (i) immediately
before the death of the deemed owner and which continues in
existence after such death, but only for the 2-year period
beginning on the day of the deemed owner's death.
(iii) A trust with respect to stock transferred to it
pursuant to the terms of a will, but only for the 2-year
period beginning on the day on which such stock is
transferred to it.
(iv) A trust created primarily to exercise the voting power
of stock transferred to it.
(v) An electing small business trust.
(vi) In the case of a corporation which is a bank (as defined
in section 581) or a depository institution holding company
(as defined in section 3(w)(1) of the Federal Deposit Insurance
Act (12 U.S.C. 1813(w)(1)), a trust which constitutes an
individual retirement account under section 408(a), including
one designated as a Roth IRA under section 408A, but only to
the extent of the stock held by such trust in such bank or
company as of the date of the enactment of this clause.
This subparagraph shall not apply to any foreign trust.
(B) Treatment as shareholders
For purposes of subsection (b)(1) -
(i) In the case of a trust described in clause (i) of
subparagraph (A), the deemed owner shall be treated as the
shareholder.
(ii) In the case of a trust described in clause (ii) of
subparagraph (A), the estate of the deemed owner shall be
treated as the shareholder.
(iii) In the case of a trust described in clause (iii) of
subparagraph (A), the estate of the testator shall be treated
as the shareholder.
(iv) In the case of a trust described in clause (iv) of
subparagraph (A), each beneficiary of the trust shall be
treated as a shareholder.
(v) In the case of a trust described in clause (v) of
subparagraph (A), each potential current beneficiary of such
trust shall be treated as a shareholder; except that, if for
any period there is no potential current beneficiary of such
trust, such trust shall be treated as the shareholder during
such period.
(vi) In the case of a trust described in
clause (vi) of subparagraph (A), the individual
for whose benefit the trust was created shall be
treated as a shareholder.
(3) Estate of individual in bankruptcy may be shareholder
For purposes of subsection (b)(1)(B), the term ''estate''
includes the estate of an individual in a case under title 11 of
the United States Code.
(4) Differences in common stock voting rights disregarded
For purposes of subsection (b)(1)(D), a corporation shall not
be treated as having more than 1 class of stock solely because
there are differences in voting rights among the shares of common
stock.
(5) Straight debt safe harbor
(A) In general
For purposes of subsection (b)(1)(D), straight debt shall not
be treated as a second class of stock.
(B) Straight debt defined
For purposes of this paragraph, the term ''straight debt''
means any written unconditional promise to pay on demand or on
a specified date a sum certain in money if -
(i) the interest rate (and interest payment dates) are not
contingent on profits, the borrower's discretion, or similar
factors,
(ii) there is no convertibility (directly or indirectly)
into stock, and
(iii) the creditor is an individual (other than a
nonresident alien), an estate, a trust described in paragraph
(2), or a person which is actively and regularly engaged in
the business of lending money.
(C) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to provide for the proper treatment of
straight debt under this subchapter and for the coordination of
such treatment with other provisions of this title.
(6) Certain exempt organizations permitted as shareholders
For purposes of subsection (b)(1)(B), an organization which is
-
(A) described in section 401(a) or 501(c)(3), and
(B) exempt from taxation under section 501(a),
may be a shareholder in an S corporation.
(d) Special rule for qualified subchapter S trust
(1) In general
In the case of a qualified subchapter S trust with respect to
which a beneficiary makes an election under paragraph (2) -
(A) such trust shall be treated as a trust described in
subsection (c)(2)(A)(i),
(B) for purposes of section 678(a), the beneficiary of such
trust shall be treated as the owner of that portion of the
trust which consists of stock in an S corporation with respect
to which the election under paragraph (2) is made, and
(C) for purposes of applying sections 465 and 469
to the beneficiary of the trust, the disposition of the
S corporation stock by the trust shall be treated as a
disposition by such beneficiary.
(2) Election
(A) In general
A beneficiary of a qualified subchapter S trust (or his legal
representative) may elect to have this subsection apply.
(B) Manner and time of election
(i) Separate election with respect to each corporation
An election under this paragraph shall be made separately
with respect to each corporation the stock of which is held
by the trust.
(ii) Elections with respect to successive income
beneficiaries
If there is an election under this paragraph with respect
to any beneficiary, an election under this paragraph shall be
treated as made by each successive beneficiary unless such
beneficiary affirmatively refuses to consent to such
election.
(iii) Time, manner, and form of election
Any election, or refusal, under this paragraph shall be
made in such manner and form, and at such time, as the
Secretary may prescribe.
(C) Election irrevocable
An election under this paragraph, once made, may be revoked
only with the consent of the Secretary.
(D) Grace period
An election under this paragraph shall be effective up to 15
days and 2 months before the date of the election.
(3) Qualified subchapter S trust
For purposes of this subsection, the term ''qualified
subchapter S trust'' means a trust -
(A) the terms of which require that -
(i) during the life of the current income beneficiary,
there shall be only 1 income beneficiary of the trust,
(ii) any corpus distributed during the life of the current
income beneficiary may be distributed only to such
beneficiary,
(iii) the income interest of the current income beneficiary
in the trust shall terminate on the earlier of such
beneficiary's death or the termination of the trust, and
(iv) upon the termination of the trust during the life of
the current income beneficiary, the trust shall distribute
all of its assets to such beneficiary, and
(B) all of the income (within the meaning of section 643(b))
of which is distributed (or required to be distributed)
currently to 1 individual who is a citizen or resident of the
United States.
A substantially separate and independent share of a trust within
the meaning of section 663(c) shall be treated as a separate
trust for purposes of this subsection and subsection (c).
(4) Trust ceasing to be qualified
(A) Failure to meet requirements of paragraph (3)(A)
If a qualified subchapter S trust ceases to meet any
requirement of paragraph (3)(A), the provisions of this
subsection shall not apply to such trust as of the date it
ceases to meet such requirement.
(B) Failure to meet requirements of paragraph (3)(B)
If any qualified subchapter S trust ceases to meet any
requirement of paragraph (3)(B) but continues to meet the
requirements of paragraph (3)(A), the provisions of this
subsection shall not apply to such trust as of the first day of
the first taxable year beginning after the first taxable year
for which it failed to meet the requirements of paragraph
(3)(B).
(e) Electing small business trust defined
(1) Electing small business trust
For purposes of this section -
(A) In general
Except as provided in subparagraph (B), the term ''electing
small business trust'' means any trust if -
(i) such trust does not have as a beneficiary any person
other than (I) an individual, (II) an estate, (III) an
organization described in paragraph (2), (3), (4), or (5) of
section 170(c), or (IV) an organization described in section
170(c)(1) which holds a contingent interest in such trust and
is not a potential current beneficiary,
(ii) no interest in such trust was acquired by purchase,
and
(iii) an election under this subsection applies to such
trust.
(B) Certain trusts not eligible
The term ''electing small business trust'' shall not include
-
(i) any qualified subchapter S trust (as defined in
subsection (d)(3)) if an election under subsection (d)(2)
applies to any corporation the stock of which is held by such
trust,
(ii) any trust exempt from tax under this subtitle, and
(iii) any charitable remainder annuity trust or charitable
remainder unitrust (as defined in section 664(d)).
(C) Purchase
For purposes of subparagraph (A), the term ''purchase'' means
any acquisition if the basis of the property acquired is
determined under section 1012.
(2) Potential current beneficiary
For purposes of this section, the term ''potential current
beneficiary'' means, with respect to any period, any person who
at any time during such period is entitled to, or at the
discretion of any person may receive, a distribution from the
principal or income of the trust(determined without regard to any
power of appointment to the extent such power remains
unexercised at the end of such period). If a trust disposes
of all of the stock which it holds in an S corporation,
then, with respect to such corporation, the term ''potential
current beneficiary'' does not include any person who first
met the requirements of the preceding sentence during the
1 year period ending on the date of such disposition.
(3) Election
An election under this subsection shall be made by the
trustee. Any such election shall apply to the taxable year of
the trust for which made and all subsequent taxable years of such
trust unless revoked with the consent of the Secretary.
(4) Cross reference
For special treatment of electing small business trusts, see
section 641(c).
Sources
(Added Pub. L. 97-354, Sec. 2, Oct. 19, 1982, 96 Stat. 1669;
amended Pub. L. 98-369, div. A, title VII, Sec. 721(c), (f), July
18, 1984, 98 Stat. 967; Pub. L. 99-514, title IX, Sec.
901(d)(4)(G), title XVIII, Sec. 1879(m)(1)(A), Oct. 22, 1986, 100
Stat. 2380, 2910; Pub. L. 100-647, title I, Sec. 1018(q)(2), Nov.
10, 1988, 102 Stat. 3585; Pub. L. 101-239, title VII, Sec.
7811(c)(6), Dec. 19, 1989, 103 Stat. 2407; Pub. L. 104-188, title
I, Sec. 1301-1302(c), 1303, 1304, 1308(a), (b), (d)(1), 1315,
1316(a), (e), 1616(b)(15), Aug. 20, 1996, 110 Stat. 1777, 1779,
1782, 1783, 1785, 1786, 1857; Pub. L. 105-34, title XVI, Sec.
1601(c)(1), (3), (4)(B), (C), Aug. 5, 1997, 111 Stat. 1087; Pub. L.
105-206, title VI, Sec. 6007(f)(3), July 22, 1998, 112 Stat. 810;
Pub. L. 106-554, Sec. 1(a)(7) (title III, Sec. 316(b)), Dec. 21,
2000, 114 Stat. 2763, 2763A-644.)
Miscellaneous
PRIOR PROVISIONS
A prior section 1361, act Aug. 16, 1954, as amended, constituted
subchapter R, prior to repeal by Pub. L. 89-389, Sec. 4(b)(1), Apr.
14, 1966, 80 Stat. 116. For further details, see matter set out
preceding subchapter S.
AMENDMENTS
2005 - P.L. 109-135, Section 413
(c) Amendments Related to Section 239 of the Act.--Paragraph (3) of
section 1361(b) is amended--
(1) in subparagraph (A), by striking ``and in the case of
information returns required under part III of subchapter A of
chapter 61'', and
(2) by adding at the end the following new subparagraph:
``(E) Information returns.--Except to the extent
provided by the Secretary, this paragraph shall not
apply to part III of subchapter A of chapter 61
(relating to information returns).''.
2005 - P.L. 109-135, Section 403
(b) Amendment Related to Section 231 of the Act.--Paragraph (1) of
section 1361(c) is <<NOTE: 26 USC 1361.>> amended to read as follows:
``(1) Members of a family treated as 1 shareholder.--
``(A) In general.--For purposes of subsection
(b)(1)(A), there shall be treated as one shareholder--
``(i) a husband and wife (and their estates),
and
``(ii) all members of a family (and their
estates).
``(B) Members of a family.--For purposes of this
paragraph--
``(i) In general.--The term `members of a
family' means a common ancestor, any lineal
descendant of such common ancestor, and any spouse
or former spouse of such common ancestor or any
such lineal descendant.
``(ii) Common ancestor.--An individual shall
not be considered to be a common ancestor if, on
the applicable date, the individual is more than 6
generations removed from the youngest generation
of shareholders who would (but for this
subparagraph) be members of the family. For
purposes of the preceding sentence, a spouse (or
former spouse) shall be treated as being of the
same generation as the individual to whom such
spouse is (or was) married.
``(iii) Applicable date.--The term `applicable
date' means the latest of--
``(I) the date the election under
section 1362(a) is made,
``(II) the earliest date that an
individual described in clause (i) holds
stock in the S corporation, or
``(III) October 22, 2004.
``(C) Effect of adoption, etc.--Any legally adopted
child of an individual, any child who is lawfully placed
with an individual for legal adoption by the individual,
and any eligible foster child of an individual (within
the meaning of section 152(f)(1)(C)), shall be treated
as a child of such individual by blood.''.
2004 - Subsec.239(a),Pub.L.108-357, amended Sec.1361(b)
(3)(A) by inserting "and in the case of information returns
required under part III of subchapter A of chapter 61'' after
``Secretary''. This amendment shall apply to taxable years
after December 31, 2004.
2004 - Subsec.236(a),Pub.L.108-357, amended Sec.1361(d)
(1) by adding new subparagraph(C).
2004 - Subsec.234(a),Pub.L.108-357, amended Sec.1361(e)
(2) by (1) by inserting ``(determined without regard to any power
of appointment to the extent such power remains unexercised at
the end of such period)'' after ``of the trust'' in the first
sentence, and (2) by striking ``60-day'' in the second sentence
and inserting ``1-year''.
2004 - Subsec.233(b),Pub.L.108-357, amended Sec.1361(c)
(2)(B) added new clause (vi).
2004 - Subsec.233(a),Pub.L.108-357, amended Sec.1361(c)
(2)(A)added new clause (vi).
2004 - Subsec.232(a),Pub.L.108-357, amended Sec.1361(b)(1)
(A) by striking "75" and inserting "100". This amendment
shall apply to taxable years beginning after December 31, 2004.
2004 - Subsec.231(a),Pub.L.108-357, amended Sec.1361(c) by
amending paragraph (1). Effective date: Shall apply to
taxable years beginning after December 31, 2004.
2000 - Subsec. (e)(1)(A)(i)(IV). Pub. L. 106-554 added subcl.
(IV).
1998 - Subsec. (e)(4). Pub. L. 105-206 substituted ''section
641(c)'' for ''section 641(d)''.
1997 - Subsec. (b)(1)(B). Pub. L. 105-34, Sec. 1601(c)(4)(C),
substituted ''subsection (c)(6)'' for ''subsection (c)(7)''.
Subsec. (b)(3)(A). Pub. L. 105-34, Sec. 1601(c)(3), substituted
''Except as provided in regulations prescribed by the Secretary,
for purposes of this title'' for ''For purposes of this title''.
Subsec. (c)(6), (7). Pub. L. 105-34, Sec. 1601(c)(4)(B),
redesignated par. (7) as (6).
Subsec. (e)(1)(B)(iii). Pub. L. 105-34, Sec. 1601(c)(1), added
cl. (iii).
1996 - Subsec. (b)(1)(A). Pub. L. 104-188, Sec. 1301, substituted
''75'' for ''35''.
Subsec. (b)(1)(B). Pub. L. 104-188, Sec. 1316(a)(1), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows: ''have as a shareholder a person (other than an estate and
other than a trust described in subsection (c)(2)) who is not an
individual,''.
Subsec. (b)(2)(A). Pub. L. 104-188, Sec. 1315, amended subpar.
(A) generally. Prior to amendment, subpar. (A) read as follows:
''a financial institution to which section 585 applies (or would
apply but for subsection (c) thereof),''.
Pub. L. 104-188, Sec. 1308(a), redesignated subpar. (B) as (A)
and struck out former subpar. (A) which read as follows: ''a member
of an affiliated group (determined under section 1504 without
regard to the exceptions contained in subsection (b) thereof),''.
Subsec. (b)(2)(B). Pub. L. 104-188, Sec. 1308(a), redesignated
subpar. (C) as (B). Former subpar. (B) redesignated (A).
Pub. L. 104-188, Sec. 1616(b)(15), struck out ''or to which
section 593 applies'' after ''subsection (c) thereof)''.
Subsec. (b)(2)(C) to (E). Pub. L. 104-188, Sec. 1308(a),
redesignated subpars. (D) and (E) as (C) and (D), respectively.
Former subpar. (C) redesignated (B).
Subsec. (b)(3). Pub. L. 104-188, Sec. 1308(b), added par. (3).
Subsec. (c)(2)(A)(ii). Pub. L. 104-188, Sec. 1303, substituted
''2-year period'' for ''60-day period'' in first sentence and
struck out at end ''If a trust is described in the preceding
sentence and if the entire corpus of the trust is includible in the
gross estate of the deemed owner, the preceding sentence shall be
applied by substituting '2-year period' for '60-day period'.''
Subsec. (c)(2)(A)(iii). Pub. L. 104-188, Sec. 1303(1),
substituted ''2-year period'' for ''60-day period''.
Subsec. (c)(2)(A)(v). Pub. L. 104-188, Sec. 1302(a), added cl.
(v).
Subsec. (c)(2)(B)(v). Pub. L. 104-188, Sec. 1302(b), added cl.
(v).
Subsec. (c)(5)(B)(iii). Pub. L. 104-188, Sec. 1304, substituted
''a trust described in paragraph (2), or a person which is actively
and regularly engaged in the business of lending money'' for ''or a
trust described in paragraph (2)''.
Subsec. (c)(6). Pub. L. 104-188, Sec. 1308(d)(1), struck out par.
(6) which read as follows:
''(6) Ownership of stock in certain inactive corporations. - For
purposes of subsection (b)(2)(A), a corporation shall not be
treated as a member of an affiliated group during any period within
a taxable year by reason of the ownership of stock in another
corporation if such other corporation -
''(A) has not begun business at any time on or before the close
of such period, and
''(B) does not have gross income for such period.''
Subsec. (c)(7). Pub. L. 104-188, Sec. 1316(a)(2), added par. (7).
Subsec. (e). Pub. L. 104-188, Sec. 1302(c), added subsec. (e).
Subsec. (e)(1)(A)(i). Pub. L. 104-188, Sec. 1316(e), struck out
''which holds a contingent interest and is not a potential current
beneficiary'' after ''170(c)''.
1989 - Subsec. (b)(2)(B). Pub. L. 101-239 amended subpar. (B)
generally. Prior to amendment, subpar. (B) read as follows: ''a
financial institution which is a bank (as defined in section
585(a)(2)) or to which section 593 applies,''.
1988 - Subsec. (d)(3). Pub. L. 100-647 substituted ''within the
meaning of'' for ''treated as a separate trust under'' in last
sentence.
1986 - Subsec. (b)(2)(B). Pub. L. 99-514, Sec. 901(d)(4)(G),
substituted ''which is a bank (as defined in section 585(a)(2)) or
to which section 593 applies'' for ''to which section 585 or 593
applies''.
Subsec. (d)(3). Pub. L. 99-514, Sec. 1879(m)(1)(A), inserted at
end ''A substantially separate and independent share of a trust
treated as a separate trust under section 663(c) shall be treated
as a separate trust for purposes of this subsection and subsection
(c).''
1984 - Subsec. (c)(6). Pub. L. 98-369, Sec. 721(c), amended par.
(6) generally, substituting ''during any period within a taxable
year'' for ''during any taxable year'' in provisions preceding
subpar. (A), and substituting ''on or before the close of such
period'' for ''on or after the date of its incorporation and before
the close of such taxable year'' in subpar. (A), and ''does not
have gross income for such period'' for ''does not have taxable
income for the period included within such taxable year'' in
subpar. (B).
Subsec. (d)(2)(B)(i). Pub. L. 98-369, Sec. 721(f)(3), substituted
''corporation'' for ''S corporation'' in heading and text.
Subsec. (d)(2)(D). Pub. L. 98-369, Sec. 721(f)(1), substituted
''15 days and 2 months'' for ''60 days''.
Subsec. (d)(3). Pub. L. 98-369, Sec. 721(f)(2), in amending par.
(3) generally, redesignated subpar. (C) as (A), substituted a
period for '', and'' at end of subpar. (B), and struck out former
subpar. (A) which read ''which owns stock in 1 or more S
corporations''.
Subsec. (d)(4). Pub. L. 98-369, Sec. 721(f)(2), in amending par.
(4) generally, redesignated existing provisions as subpar. (A),
inserted ''Failure to meet requirements of paragraph (3)(A)'' as
subpar. (A) heading, substituted ''of paragraph (3)(A)'' for
''under paragraph (3)'', and added subpar. (B).
EFFECTIVE DATE OF 2005 AMENDMENT
P.L. 109-135, Section 413
(d) Effective Date.--The <<NOTE: 26 USC 1361 note.>> amendments made
by this section shall take effect as if included in the provisions of
the American Jobs Creation Act of 2004 to which they relate.
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub.L.108-357,Sec.232(a), shall apply to
taxable years beginning after December 31, 2004. Amendments
by Sec.234(a)(1) and (2) shall apply to taxable years
beginning after December 31, 2004. Amendments by Sec.236(a)
shall apply to transfers made after December 31, 2004.
Amendments by Sec.239(a), shall apply to taxable years
after December 31, 2004.
EFFECTIVE DATE OF 2000 AMENDMENT
Amendment by Pub. L. 106-554 effective as if included in the
provisions of the Small Business Job Protection Act of 1996, Pub.
L. 104-188, to which such amendment relates, see section 1(a)(7)
(title III, Sec. 316(e)) of Pub. L. 106-554, set out as a note
under section 51 of this title.
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 effective as if included in the
provisions of the Small Business Job Protection Act of 1996, Pub.
L. 104-188, to which it relates, see section 1601(j) of Pub. L.
105-34, set out as a note under section 23 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by sections 1301-1302(c), 1303, 1304, 1308(a), (b),
(d)(1), and 1315 of Pub. L. 104-188 applicable to taxable years
beginning after Dec. 31, 1996, see section 1317(a) of Pub. L.
104-188, set out as a note under section 641 of this title.
Amendment by sections 1316(a), (e) of Pub. L. 104-188 applicable
to taxable years beginning after Dec. 31, 1997, see section 1316(f)
of Pub. L. 104-188, set out as a note under section 170 of this
title.
Amendment by section 1616(b)(15) of Pub. L. 104-188 applicable to
taxable years beginning after Dec. 31, 1995, see section 1616(c) of
Pub. L. 104-188, set out as a note under section 593 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-239 effective, except as otherwise
provided, as if included in the provision of the Technical and
Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such
amendment relates, see section 7817 of Pub. L. 101-239, set out as
a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 901(d)(4)(G) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 901(e) of
Pub. L. 99-514, set out as a note under section 166 of this title.
Section 1879(m)(2) of Pub. L. 99-514 provided that: ''The
amendments made by this subsection (amending this section and
section 1368 of this title) shall apply to taxable years beginning
after December 31, 1982.''
EFFECTIVE DATE OF 1984 AMENDMENT
Section 721(y) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
''(1) In general. - Except as otherwise provided in this
subsection, any amendment made by this section (amending this
section, sections 48, 108, 267, 318, 465, 1362, 1363, 1367, 1368,
1371, 1374, 1375, 1378, 1379, 6362, and 6659 and provisions set out
as a note under this section) shall take effect as if included in
the Subchapter S Revision Act of 1982 (Pub. L. 97-354).
''(2) Amendment made by subsection (b)(2). - Subparagraph (C) of
section 108(d)(7) of the Internal Revenue Code of 1986 (formerly
I.R.C. 1954) (as amended by subsection (b)(2)) shall apply to
contributions to capital after December 31, 1980, in taxable years
ending after such date.
''(3) Amendment made by subsection (g)(1). - If -
''(A) any portion of a qualified stock purchase is pursuant to
a binding contract entered into on or after October 19, 1982, and
before the date of the enactment of this Act (July 18, 1984), and
''(B) the purchasing corporation establishes by clear and
convincing evidence that such contract was negotiated on the
contemplation that, with respect to the deemed sale under section
338 of the Internal Revenue Code of 1986, paragraph (2) of
section 1362(e) of such Code would apply,
then the amendment made by paragraph (1) of subsection (g)
(amending section 1362 of this title) shall not apply to such
qualified stock purchase.
''(4) Amendments made by subsection (l). - The amendments made by
subsection (l) (amending section 1362 of this title) shall apply to
any election under section 1362 of the Internal Revenue Code of
1986 (or any corresponding provision of prior law) made after
October 19, 1982.
''(5) Amendment made by subsection (t). - If -
''(A) on or before the date of the enactment of this Act (July
18, 1984) 50 percent or more of the stock of an S corporation has
been sold or exchanged in 1 or more transactions, and
''(B) the person (or persons) acquiring such stock establish by
clear and convincing evidence that such acquisitions were
negotiated on the contemplation that paragraph (2) of section
1362(e) of the Internal Revenue Code of 1986 would apply to the S
termination year in which such sales or exchanges occur,
then the amendment made by subsection (t) (amending section 1362 of
this title) shall not apply to such S termination year.''
EFFECTIVE DATE
Section 6 of Pub. L. 97-354, as amended by Pub. L. 97-448, title
III, Sec. 305(d)(1)(A), Jan. 12, 1983, 96 Stat. 2399; Pub. L.
98-369, div. A, title VII, Sec. 721(i), (k), July 18, 1984, 98
Stat. 969; Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095,
provided that:
''(a) In General. - Except as otherwise provided in this section,
the amendments made by this Act (enacting this section and sections
1362, 1363, 1366 to 1368, 1371 to 1375, 1377 to 1379, and 6241 to
6245 of this title, amending sections 31, 44D to 44F, 46, 48, 50A,
50B, 52, 53, 55, 57, 58, 62, 108, 163, 168, 170, 172, 179, 183,
189, 194, 267, 280, 280A, 291, 447, 464, 465, 613A, 992, 1016,
1101, 1212, 1251, 1254, 1256, 3453, 3454, 4992, 4996, 6037, 6042,
6362, and 6661 of this title and section 1108 of Title 29, Labor,
omitting section 1376 of this title, and enacting provisions set
out as a note under section 1 of this title) shall apply to taxable
years beginning after December 31, 1982.
''(b) Transitional Rules. -
''(1) Sections 1379 and 62(9) continue to apply for 1983. -
Sections 1379 and 62(9) of the Internal Revenue Code of 1986
(formerly I.R.C. 1954) (as in effect before the date of the
enactment of this Act (Oct. 19, 1982)) shall remain in effect for
years beginning before January 1, 1984.
''(2) Allowance of exclusion of death benefit. -
Notwithstanding section 241(b) of the Tax Equity and Fiscal
Responsibility Act of 1982 (section 241(b) of Pub. L. 97-248, set
out as a note under section 416 of this title) in the case of
amounts received under a plan of an S corporation, the amendment
made by section 239 of such Act (section 239 of Pub. L. 97-248,
amending section 101 of this title) shall apply with respect to
decedents dying after December 31, 1982.
''(3) New passive income rules apply to taxable years beginning
during 1982. - In the case of a taxable year beginning during
1982 -
''(A) sections 1362(d)(3), 1366(f)(3), and 1375 of the
Internal Revenue Code of 1986 (as amended by this Act (Pub. L.
97-354)) shall apply, and
''(B) section 1372(e)(5) of such Code (as in effect on the
day before the date of the enactment of this Act (Oct. 19,
1982)) shall not apply.
The preceding sentence shall not apply in the case of any
corporation which elects (at such time and in such manner as the
Secretary of the Treasury or his delegate shall prescribe) to
have such sentence not apply. Subsection (e) shall not apply to
any termination resulting from an election under the preceding
sentence.
''(c) Grandfather Rules. -
''(1) Subsidiaries which are foreign corporations or disc's. -
In the case of any corporation which on September 28, 1982, would
have been a member of the same affiliated group as an electing
small business corporation but for paragraph (3) or (7) of
section 1504(b) of the Internal Revenue Code of 1986,
subparagraph (A) of section 1361(b)(2) of such Code (as amended
by section 2) shall be applied by substituting 'without regard to
the exceptions contained in paragraphs (1), (2), (4), (5), and
(6) of subsection (b) thereof' for 'without regard to the
exceptions contained in subsection (b) thereof'.
''(2) Casualty insurance companies. -
''(A) In general. - In the case of any qualified casualty
insurance electing small business corporation -
''(i) the amendments made by this Act shall not apply, and
''(ii) subchapter S (as in effect on July 1, 1982) of
chapter 1 of the Internal Revenue Code of 1986 (former
sections 1371 to 1379 of this title) and part III of
subchapter L of chapter 1 of such Code (section 831 et seq.
of this title) shall apply.
''(B) Qualified casualty insurance electing small business
corporation. - The term 'qualified casualty insurance electing
small business corporation' means any corporation described in
section 831(a) of the Internal Revenue Code of 1986 if -
''(i) as of July 12, 1982, such corporation was an electing
small business corporation and was described in section
831(a) of such Code,
''(ii) such corporation was formed before April 1, 1982,
and proposed (through a written private offering first
circulated to investors before such date) to elect to be
taxed as a subchapter S corporation and to be operated on an
established insurance exchange, or
''(iii) such corporation is approved for membership on an
established insurance exchange pursuant to a written
agreement entered into before December 31, 1982, and such
corporation is described in section 831(a) of such Code as of
December 31, 1984.
A corporation shall not be treated as a qualified casualty
insurance electing small business corporation unless an
election under subchapter S of chapter 1 of such Code is in
effect for its first taxable year beginning after December 31,
1984.
''(3) Certain corporations with oil and gas production. -
''(A) In general. - In the case of any qualified oil
corporation -
''(i) the amendments made by this Act shall not apply, and
''(ii) subchapter S (as in effect on July 1, 1982) of
chapter 1 of the Internal Revenue Code of 1986 (former
sections 1371 to 1379 of this title) shall apply.
''(B) Qualified oil corporation. - For purposes of this
paragraph, the term 'qualified oil corporation' means any
corporation if -
''(i) as of September 28, 1982, such corporation -
''(I) was an electing small business corporation, or
''(II) was a small business corporation which made an
election under section 1372(a) after December 31, 1981, and
before September 28, 1982,
''(ii) for calendar year 1982, the combined average daily
production of domestic crude oil or natural gas of such
corporation and any one of its substantial shareholders
exceeds 1,000 barrels, and
''(iii) such corporation makes an election under this
subparagraph at such time and in such manner as the Secretary
of the Treasury or his delegate shall prescribe.
''(C) Average daily production. - For purposes of
subparagraph (B), the average daily production of domestic
crude oil or domestic natural gas shall be determined under
section 613A(c)(2) of such Code without regard to the last
sentence thereof.
''(D) Substantial shareholder. - For purposes of subparagraph
(B), the term 'substantial shareholder' means any person who on
July 1, 1982, owns more than 40 percent (in value) of the stock
of the corporation.
''(4) Continuity required. -
''(A) In general. - This subsection shall cease to apply with
respect to any corporation after -
''(i) any termination of the election of the corporation
under subchapter S of chapter 1 of such Code, or
''(ii) the first day on which more than 50 percent of the
stock of the corporation is newly owned stock within the
meaning of section 1378(c)(2) of such Code (as amended by
this Act (Pub. L. 97-354)).
''(B) Special rules for paragraph (2). -
''(i) Paragraph (2) shall also cease to apply with respect
to any corporation after the corporation ceases to be
described in section 831(a) of such Code.
''(ii) For purposes of determining under subparagraph
(A)(ii) whether paragraph (2) ceases to apply to any
corporation, section 1378(c)(2) of such Code (as amended by
this Act (Pub. L. 97-354)) shall be applied by substituting
'December 31, 1984' for 'December 31, 1982' each place it
appears therein.
''(d) Treatment of Existing Fringe Benefit Plans. -
''(1) In general. - In the case of existing fringe benefits of
a corporation which as of September 28, 1982, was an electing
small business corporation, section 1372 of the Internal Revenue
Code of 1986 (as added by this Act (Pub. L. 97-354)) shall apply
only with respect to taxable years beginning after December 31,
1987.
''(2) Requirements. - This subsection shall cease to apply with
respect to any corporation after whichever of the following first
occurs:
''(A) the first day of the first taxable year beginning after
December 31, 1982, with respect to which the corporation does
not meet the requirements of section 1372(e)(5) of such Code
(as in effect on the day before the date of the enactment of
this Act (Oct. 19, 1982)),
''(B) any termination after December 31, 1982, of the
election of the corporation under subchapter S of chapter 1 of
such Code, or
''(C) the first day on which more than 50 percent of the
stock of the corporation is newly owned stock within the
meaning of section 1378(c)(2) of such Code (as amended by this
Act (Pub. L. 97-354)).
''(3) Existing fringe benefit. - For purposes of this
subsection, the term 'existing fringe benefit' means any employee
fringe benefit of a type which the corporation provided to its
employees as of September 28, 1982.
''(e) Treatment of Certain Elections Under Prior Law. - For
purposes of section 1362(g) of the Internal Revenue Code of 1986,
as amended by this Act (Pub. L. 97-354) (relating to no election
permitted within 5 years after termination of prior election), any
termination or revocation under section 1372(e) of such Code (as in
effect on the day before the date of the enactment of this Act
(Oct. 19, 1982)) shall not be taken into account.
''(f) Taxable Year of S Corporations. - Section 1378 of the
Internal Revenue Code of 1986 (as added by this Act (Pub. L.
97-354)) shall take effect on the day after the date of the
enactment of this Act (Oct. 19, 1982). For purposes of applying
such section, the reference in subsection (a)(2) of such section to
an election under section 1362(a) shall include a reference to an
election under section 1372(a) of such Code as in effect on the day
before the date of the enactment of this Act (Oct. 19, 1982).''
ELIMINATION OF CERTAIN EARNINGS AND PROFITS
Section 1311(a) of Pub. L. 104-188 provided that: ''If -
''(1) a corporation was an electing small business corporation
under subchapter S of chapter 1 of the Internal Revenue Code of
1986 for any taxable year beginning before January 1, 1983, and
''(2) such corporation is an S corporation under subchapter S
of chapter 1 of such Code for its first taxable year beginning
after December 31, 1996,
the amount of such corporation's accumulated earnings and profits
(as of the beginning of such first taxable year) shall be reduced
by an amount equal to the portion (if any) of such accumulated
earnings and profits which were accumulated in any taxable year
beginning before January 1, 1983, for which such corporation was an
electing small business corporation under such subchapter S.''
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI (Sec. 1101-1147 and 1171-1177) or title
XVIII (Sec. 1800-1899A) of Pub. L. 99-514 require an amendment to
any plan, such plan amendment shall not be required to be made
before the first plan year beginning on or after Jan. 1, 1989, see
section 1140 of Pub. L. 99-514, as amended, set out as a note under
section 401 of this title.
TRANSITIONAL PROVISIONS
Pub. L. 97-448, title III, Sec. 305(d)(1)(B), Jan. 12, 1983, 96
Stat. 2399, as amended by Pub. L. 99-514, Sec. 2, Oct. 22, 1986,
100 Stat. 2095, provided that: ''If -
''(i) after September 30, 1982, and on or before the date of
the enactment of this Act (Jan. 12, 1983), stock or securities
were transferred to a small business corporation (as defined in
section 1361(b) of the Internal Revenue Code of 1986 (formerly
I.R.C. 1954) as amended by the Subchapter S Revision Act of 1982
(Pub. L. 97-354)) in a transaction to which section 351 of such
Code applies, and
''(ii) such corporation is liquidated under section 333 of such
Code before March 1, 1983,
then such stock or securities shall not be taken into account under
section 333(e)(2) of such Code.''
References
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 280G, 512, 641, 678, 856,
1362 of this title; title 29 section 1108.
