Internal Revenue Code:Sec. 1371. Coordination with subchapter C

From TaxAlmanac

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 III - SPECIAL RULES
        

Statute

    Sec. 1371. Coordination with subchapter C
 
    (a) Application of subchapter C rules
      Except as otherwise provided in this title, and except to the
    extent inconsistent with this subchapter, subchapter C shall apply
    to an S corporation and its shareholders.
    (b) No carryover between C year and S year
      (1) From C year to S year
        No carryforward, and no carryback, arising for a taxable year
      for which a corporation is a C corporation may be carried to a
      taxable year for which such corporation is an S corporation.
      (2) No carryover from S year
        No carryforward, and no carryback, shall arise at the corporate
      level for a taxable year for which a corporation is an S
      corporation.
      (3) Treatment of S year as elapsed year
        Nothing in paragraphs (1) and (2) shall prevent treating a
      taxable year for which a corporation is an S corporation as a
      taxable year for purposes of determining the number of taxable
      years to which an item may be carried back or carried forward.
    (c) Earnings and profits
      (1) In general
        Except as provided in paragraphs (2) and (3) and subsection
      (d)(3), no adjustment shall be made to the earnings and profits
      of an S corporation.
      (2) Adjustments for redemptions, liquidations, reorganizations,
          divisives, etc.
        In the case of any transaction involving the application of
      subchapter C to any S corporation, proper adjustment to any
      accumulated earnings and profits of the corporation shall be
      made.
      (3) Adjustments in case of distributions treated as dividends
          under section 1368(c)(2)
        Paragraph (1) shall not apply with respect to that portion of a
      distribution which is treated as a dividend under section
      1368(c)(2).
    (d) Coordination with investment credit recapture
      (1) No recapture by reason of election
        Any election under section 1362 shall be treated as a mere
      change in the form of conducting a trade or business for purposes
      of the second sentence of section 50(a)(4).
      (2) Corporation continues to be liable
        Notwithstanding an election under section 1362, an S
      corporation shall continue to be liable for any increase in tax
      under section 49(b) or 50(a) attributable to credits allowed for
      taxable years for which such corporation was not an S
      corporation.
      (3) Adjustment to earnings and profits for amount of recapture
        Paragraph (1) of subsection (c) shall not apply to any increase
      in tax under section 49(b) or 50(a) for which the S corporation
      is liable.
    (e) Cash distributions during post-termination transition period
      (1) In general
        Any distribution of money by a corporation with respect to its
      stock during a post-termination transition period shall be
      applied against and reduce the adjusted basis of the stock, to
      the extent that the amount of the distribution does not exceed
      the accumulated adjustments account (within the meaning of
      section 1368(e)).
      (2) Election to distribute earnings first
        An S corporation may elect to have paragraph (1) not apply to
      all distributions made during a post-termination transition
      period described in section 1377(b)(1)(A). Such election shall
      not be effective unless all shareholders of the S corporation to
      whom distributions are made by the S corporation during such
      post-termination transition period consent to such election.
 

Sources

    (Added Pub. L. 97-354, Sec. 2, Oct. 19, 1982, 96 Stat. 1681;
    amended Pub. L. 98-369, div.  A, title VII, Sec. 721(e), (o),
    (x)(3), July 18, 1984, 98 Stat. 967, 970, 971; Pub. L. 99-514,
    title XVIII, Sec. 1899A(33), (34), Oct. 22, 1986, 100 Stat. 2960;
    Pub. L. 101-508, title XI, Sec. 11813(b)(23), Nov. 5, 1990, 104
    Stat. 1388-555; Pub. L. 104-188, title I, Sec. 1310, Aug. 20, 1996,
    110 Stat. 1784.)
 

Miscellaneous

                              PRIOR PROVISIONS
      A prior section 1371, added Pub. L. 85-866, title I, Sec. 64(a),
    Sept. 2, 1958, 72 Stat. 1650; amended Pub. L. 86-376, Sec. 2(a),
    Sept. 23, 1959, 73 Stat. 699; Pub. L. 88-272, title II, Sec.
    233(a), Feb. 26, 1964, 78 Stat. 112; Pub. L. 94-455, title IX, Sec.
    902(a)(1), (2), (c)(1), (2), Oct. 4, 1976, 90 Stat. 1608, 1609;
    Pub. L. 95-600, title III, Sec. 341, 342, title VII, Sec.
    701(y)(1), Nov. 6, 1978, 92 Stat. 2843, 2921; Pub. L. 96-589, Sec.
    5(d), Dec. 24, 1980, 94 Stat. 3406; Pub. L. 97-34, title II, Sec.
    233(a), 234(a), (b), Aug. 13, 1981, 95 Stat. 250, 251; Pub. L.
    97-448, title I, Sec. 102(i)(1), Jan. 12, 1983, 96 Stat. 2372,
    related to definitions applicable to election of small business
    corporations as to taxable status, prior to the general revision of
    this subchapter by section 2 of Pub. L. 97-354.
                                 AMENDMENTS
      1996 - Subsec. (a). Pub. L. 104-188 reenacted heading without
    change and amended text generally.  Prior to amendment, text read
    as follows:
      ''(1) In general. - Except as otherwise provided in this title,
    and except to the extent inconsistent with this subchapter,
    subchapter C shall apply to an S corporation and its shareholders.
      ''(2) S corporation as shareholder treated like individual. - For
    purposes of subchapter C, an S corporation in its capacity as a
    shareholder of another corporation shall be treated as an
    individual.''
      1990 - Subsec. (d)(1). Pub. L. 101-508, Sec. 11813(b)(23)(A),
    substituted ''section 50(a)(4)'' for ''section 47(b)''.
      Subsec. (d)(2), (3). Pub. L. 101-508, Sec. 11813(b)(23)(B),
    substituted ''section 49(b) or 50(a)'' for ''section 47''.
      1986 - Subsec. (e)(1). Pub. L. 99-514, Sec. 1899A(33), inserted
    ''(within the meaning of section 1368(e))''.
      Subsec. (e)(2). Pub. L. 99-514, Sec. 1899A(34), struck out
    ''(within the meaning of section 1368(e))'' after ''to such
    election''.
      1984 - Subsec. (c)(1). Pub. L. 98-369, Sec. 621(e)(2),
    substituted ''paragraphs (2) and (3) and subsection (d)(3)'' for
    ''paragraphs (2) and (3)''.
      Subsec. (d)(3). Pub. L. 98-369, Sec. 721(e)(1), added par. (3).
      Subsec. (e). Pub. L. 98-369, Sec. 721(o), amended subsec. (e)
    generally, designating existing provisions as par. (1) and adding
    par. (2).
      Subsec. (e)(2). Pub. L. 98-369, Sec. 721(x)(3), inserted
    ''(within the meaning of section 1368(e))''.
                      EFFECTIVE DATE OF 1996 AMENDMENT
      Amendment by 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.
                      EFFECTIVE DATE OF 1990 AMENDMENT
      Amendment by Pub. L. 101-508 applicable to property placed in
    service after Dec. 31, 1990, but not applicable to any transition
    property (as defined in section 49(e) of this title), any property
    with respect to which qualified progress expenditures were
    previously taken into account under section 46(d) of this title,
    and any property described in section 46(b)(2)(C) of this title, as
    such sections were in effect on Nov. 4, 1990, see section 11813(c)
    of Pub. L. 101-508, set out as a note under section 29 of this
    title.
                      EFFECTIVE DATE OF 1984 AMENDMENT
      Amendment by Pub. L. 98-369 effective as if included in the
    Subchapter S Revision Act of 1982, Pub. L. 97-354, see section
    721(y)(1) of Pub. L. 98-369, set out as a note under section 1361
    of this title.
                               EFFECTIVE DATE
      Section applicable to taxable years beginning after Dec. 31,
    1982, see section 6(a) of Pub. L. 97-354, set out as a note under
    section 1361 of this title.
                             SAVINGS PROVISION
      For provisions that nothing in amendment by Pub. L. 101-508 be
    construed to affect treatment of certain transactions occurring,
    property acquired, or items of income, loss, deduction, or credit
    taken into account prior to Nov. 5, 1990, for purposes of
    determining liability for tax for periods ending after Nov. 5,
    1990, see section 11821(b) of Pub. L. 101-508, set out as a note
    under section 29 of this title.
             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.
 

References

                   SECTION REFERRED TO IN OTHER SECTIONS
      This section is referred to in sections 1374, 6655 of this title.