Internal Revenue Code:Sec. 1377. Definitions and special rule

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Contents


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 IV - DEFINITIONS; MISCELLANEOUS
        

Statute

    Sec. 1377. Definitions and special rule
 
    (a) Pro rata share
      For purposes of this subchapter -
      (1) In general
        Except as provided in paragraph (2), each shareholder's pro
      rata share of any item for any taxable year shall be the sum of
      the amounts determined with respect to the shareholder -
          (A) by assigning an equal portion of such item to each day of
        the taxable year, and
          (B) then by dividing that portion pro rata among the shares
        outstanding on such day.
      (2) Election to terminate year
        (A) In general
          Under regulations prescribed by the Secretary, if any
        shareholder terminates the shareholder's interest in the
        corporation during the taxable year and all affected
        shareholders and the corporation agree to the application of
        this paragraph, paragraph (1) shall be applied to the affected
        shareholders as if the taxable year consisted of 2 taxable
        years the first of which ends on the date of the termination.
        (B) Affected shareholders
          For purposes of subparagraph (A), the term ''affected
        shareholders'' means the shareholder whose interest is
        terminated and all shareholders to whom such shareholder has
        transferred shares during the taxable year.  If such
        shareholder has transferred shares to the corporation, the term
        ''affected shareholders'' shall include all persons who are
        shareholders during the taxable year.
    (b) Post-termination transition period
      (1) In general
        For purposes of this subchapter, the term ''post-termination
      transition period'' means -
          (A) the period beginning on the day after the last day of the
        corporation's last taxable year as an S corporation and ending
        on the later of -
            (i) the day which is 1 year after such last day, or
            (ii) the due date for filing the return for such last year
          as an S corporation (including extensions),
          (B) the 120-day period beginning on the date of any
        determination pursuant to an audit of the taxpayer which
        follows the termination of the corporation's election and which
        adjusts a subchapter S item of income, loss, or deduction of
        the corporation arising during the S period (as defined in
        section 1368(e)(2)), and
          (C) the 120-day period beginning on the date of a
        determination that the corporation's election under section
        1362(a) had terminated for a previous taxable year.
      (2) Determination defined
        For purposes of paragraph (1), the term ''determination'' means
      -
          (A) a determination as defined in section 1313(a), or
          (B) an agreement between the corporation and the Secretary
        that the corporation failed to qualify as an S corporation.
      (3) Special rules for audit related post-termination 
        transition periods.--
          (A) No application to carryovers.--Paragraph 
             (1)(B) shall not apply for purposes of section 
                1366(d)(3).
          (B) Limitation on application to distributions.--
               Paragraph (1)(B) shall apply to a distribution described 
               in section 1371(e) only to the extent that the amount of 
               such distribution does not exceed the aggregate increase 
               (if any) in the accumulated adjustments account (within 
               the meaning of section 1368(e)) by reason of the 
               adjustments referred to in such paragraph.
    (c) Manner of making elections, etc.
      Any election under this subchapter, and any revocation under
    section 1362(d)(1), shall be made in such manner as the Secretary
    shall by regulations prescribe.
 

Sources

    (Added Pub. L. 97-354, Sec. 2, Oct. 19, 1982, 96 Stat. 1685;
    amended Pub. L. 104-188, title I, Sec. 1306-1307(b), Aug. 20, 1996,
    110 Stat. 1780.)
 

Miscellaneous

                              PRIOR PROVISIONS
      A prior section 1377, added Pub. L. 85-866, title I, Sec. 64(a),
    Sept. 2, 1958, 72 Stat. 1656; amended Pub. L. 94-455, title IX,
    Sec. 902(b)(1), title XIX, Sec. 1901(b)(32)(B)(iv), Oct. 4, 1976,
    90 Stat. 1608, 1800, related to special rules applicable to
    earnings and profits of electing small business corporations, prior
    to the general revision of this subchapter by section 2 of Pub. L.
    97-354.
                                 AMENDMENTS
      2004 - Subsec.407(a),Pub.L.108-311, amended Sec.1377(b) by
    adding a new paragraph (3).
      1996 - Subsec. (a)(2). Pub. L. 104-188, Sec. 1306, reenacted
    heading without change and amended text generally.  Prior to
    amendment, text read as follows: ''Under regulations prescribed by
    the Secretary, if any shareholder terminates his interest in the
    corporation during the taxable year and all persons who are
    shareholders during the taxable year agree to the application of
    this paragraph, paragraph (1) shall be applied as if the taxable
    year consisted of 2 taxable years the first of which ends on the
    date of the termination.''
      Subsec. (b)(1)(A) to (C). Pub. L. 104-188, Sec. 1307(a), struck
    out ''and'' at end of subpar. (A)(ii), added subpar. (B), and
    redesignated former subpar. (B) as (C).
      Subsec. (b)(2)(A) to (C). Pub. L. 104-188, Sec. 1307(b), added
    subpar. (A), redesignated subpar. (C) as (B), and struck out former
    subpars. (A) and (B) which read as follows:
      ''(A) a court decision which becomes final,
      ''(B) a closing agreement, or''.
                     EFFECTIVE DATE OF 1996 AMENDMENTS
      Pub. L. 105-34, title XVI, Sec. 1601(c)(2), Aug. 5, 1997, 111
    Stat. 1087, provided that:
      ''(A) Notwithstanding section 1317 of the Small Business Job
    Protection Act of 1996 (Pub. L. 104-188, enacting provisions set
    out as notes under sections 641 and 1362 of this title), the
    amendments made by subsections (a) and (b) of section 1307 of such
    Act (amending this section) shall apply to determinations made
    after December 31, 1996.
      ''(B) In no event shall the 120-day period referred to in section
    1377(b)(1)(B) of the Internal Revenue Code of 1986 (as added by
    such section 1307) expire before the end of the 120-day period
    beginning on the date of the enactment of this Act (Aug. 5,
    1997).''
      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
      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.
 

References

                   SECTION REFERRED TO IN OTHER SECTIONS
      This section is referred to in section 1371 of this title.
 

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