26 U.S.C. § 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, or

(C)

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

(i)

In general

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.

(ii)

Termination by reason of sale of stock

If the failure to meet the requirements of subparagraph (B) is by reason of the sale of stock of a corporation which is a qualified subchapter S subsidiary, the sale of such stock shall be treated as if—

(I)

the sale were a sale of an undivided interest in the assets of such corporation (based on the percentage of the corporation’s stock sold), and

(II)

the sale were followed by an acquisition by such corporation of all of its assets (and the assumption by such corporation of all of its liabilities) in a transaction to which section 351 applies.

(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)

12 U.S.C. 1813(w)(1) 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 (), 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. This clause shall not apply for purposes of subsection (b)(1)(C).

(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 the 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).

(f)

Restricted bank director stock

(1)

In general

Restricted bank director stock shall not be taken into account as outstanding stock of the S corporation in applying this subchapter (other than section 1368(f)).

(2)

Restricted bank director stock

12 U.S.C. 1813(w)(1)For purposes of this subsection, the term “restricted bank director stock” means stock in 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 ()), if such stock—

(A)

is required to be held by an individual under applicable Federal or State law in order to permit such individual to serve as a director, and

(B)

is subject to an agreement with such bank or company (or a corporation which controls (within the meaning of section 368(c)) such bank or company) pursuant to which the holder is required to sell back such stock (at the same price as the individual acquired such stock) upon ceasing to hold the office of director.

(3)

Cross reference

For treatment of certain distributions with respect to restricted bank director stock, see section 1368(f).

(g)

Special rule for bank required to change from the reserve method of accounting on becoming S corporation

In the case of a bank which changes from the reserve method of accounting for bad debts described in section 585 or 593 for its first taxable year for which an election under section 1362(a) is in effect, the bank may elect to take into account any adjustments under section 481 by reason of such change for the taxable year immediately preceding such first taxable year.

Pub. L. 97–354, § 2Oct. 19, 198296 Stat. 1669 Pub. L. 98–369, div. A, title VII, § 721(c)July 18, 198498 Stat. 967 Pub. L. 99–514, title IX, § 901(d)(4)(G)Oct. 22, 1986100 Stat. 2380 Pub. L. 100–647, title I, § 1018(q)(2)Nov. 10, 1988102 Stat. 3585 Pub. L. 101–239, title VII, § 7811(c)(6)Dec. 19, 1989103 Stat. 2407 Pub. L. 104–188, title IAug. 20, 1996110 Stat. 1777 Pub. L. 105–34, title XVI, § 1601(c)(1)Aug. 5, 1997111 Stat. 1087 Pub. L. 105–206, title VI, § 6007(f)(3)July 22, 1998112 Stat. 810 Pub. L. 106–554, § 1(a)(7) [title III, § 316(b)]Dec. 21, 2000114 Stat. 2763 Pub. L. 108–357, title IIOct. 22, 2004118 Stat. 1433–1435 Pub. L. 109–135, title IVDec. 21, 2005119 Stat. 2620 Pub. L. 110–28, title VIIIMay 25, 2007121 Stat. 197 Pub. L. 115–97, title I, § 13541(a)Dec. 22, 2017131 Stat. 2154 Pub. L. 115–141, div. U, title I, § 109(a)Mar. 23, 2018132 Stat. 1171(Added , , ; amended , (f), , ; , title XVIII, § 1879(m)(1)(A), , , 2910; , , ; , , ; , §§ 1301–1302(c), 1303, 1304, 1308(a), (b), (d)(1), 1315, 1316(a), (e), 1616(b)(15), , , 1779, 1782, 1783, 1785, 1786, 1857; , (3), (4)(B), (C), , ; , , ; , , , 2763A–644; , §§ 231(a), 232(a), 233(a), (b), 234(a), 236(a), 239(a), , , 1437; , §§ 403(b), 413(a)(1), (c), , , 2641; , §§ 8232(a), 8233(a), 8234(a), , , 198; , , ; , title IV, § 401(a)(190), (d)(1)(D)(xvi), , , 1193, 1208.)

Editorial Notes

References in Text

Pub. L. 108–357Oct. 22, 2004The date of the enactment of this clause, referred to in subsec. (c)(2)(A)(vi), is the date of enactment of , which was approved .

Prior Provisions

Aug. 16, 1954, ch. 736 68A Stat. 350Oct. 10, 1962Pub. L. 87–792, § 7(h)76 Stat. 829Feb. 26, 1964Pub. L. 88–272, title II, § 225(k)(5)78 Stat. 94Apr. 14, 1966Pub. L. 89–389, § 4(a)80 Stat. 115 Pub. L. 89–389, § 4(b)(1)Apr. 14, 196680 Stat. 116Jan. 1, 1969A prior section 1361, acts , ; , , ; , , ; , , , related to election of certain partnerships and proprietorships to be taxed as domestic corporations, prior to repeal by , , , effective .

Amendments

Pub. L. 115–141, § 401(d)(1)(D)(xvi)2018—Subsec. (b)(2)(C), (D). , redesignated subpar. (D) as (C) and struck out former subpar. (C) which read as follows: “a corporation to which an election under section 936 applies, or”.

Pub. L. 115–141, § 109(a)Subsec. (c)(2)(B)(vi). , substituted “the shareholder” for “a shareholder”.

Pub. L. 115–141, § 401(a)(190)Subsec. (f)(2). , substituted “1813(w)(1))),” for “1813(w)(1)),” in introductory provisions.

Pub. L. 115–972017—Subsec. (c)(2)(B)(v). inserted at end “This clause shall not apply for purposes of subsection (b)(1)(C).”

Pub. L. 110–28, § 8234(a)2007—Subsec. (b)(3)(C). , designated existing provisions as cl. (i), inserted cl. (i) heading, and added cl. (ii).

Pub. L. 110–28, § 8232(a)Subsec. (f). , added subsec. (f).

Pub. L. 110–28, § 8233(a)Subsec. (g). , added subsec. (g).

Pub. L. 109–135, § 413(c)(1)2005—Subsec. (b)(3)(A). , struck out “and in the case of information returns required under part III of subchapter A of chapter 61” after “Secretary”.

Pub. L. 109–135, § 413(c)(2)Subsec. (b)(3)(E). , added subpar. (E).

Pub. L. 109–135, § 403(b)Subsec. (c)(1). , reenacted heading without change and amended text generally. Prior to amendment, text consisted of subpars. (A) to (D) relating to treatment as 1 shareholder, family members, adoption, and election.

Pub. L. 109–135, § 413(a)(1)12 U.S.C. 1813(w)(1)Subsec. (c)(2)(A)(vi). , inserted “or a depository institution holding company (as defined in section 3(w)(1) of the Federal Deposit Insurance Act ()” after “a bank (as defined in section 581)” and “or company” after “such bank”.

Pub. L. 108–357, § 232(a)2004—Subsec. (b)(1)(A). , substituted “100” for “75”.

Pub. L. 108–357, § 239(a)Subsec. (b)(3)(A). , inserted “and in the case of information returns required under part III of subchapter A of chapter 61” after “Secretary”.

Pub. L. 108–357, § 231(a)Subsec. (c)(1). , amended heading and text of par. (1) generally. Prior to amendment, text read as follows: “For purposes of subsection (b)(1)(A), a husband and wife (and their estates) shall be treated as 1 shareholder.”

Pub. L. 108–357, § 233(a)Subsec. (c)(2)(A)(vi). , added cl. (vi).

Pub. L. 108–357, § 233(b)Subsec. (c)(2)(B)(vi). , added cl. (vi).

Pub. L. 108–357, § 236(a)Subsec. (d)(1)(C). , added subpar. (C).

Pub. L. 108–357, § 234(a)Subsec. (e)(2). , inserted “(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” and substituted “1-year” for “60-day”.

Pub. L. 106–5542000—Subsec. (e)(1)(A)(i)(IV). added subcl. (IV).

Pub. L. 105–2061998—Subsec. (e)(4). substituted “section 641(c)” for “section 641(d)”.

Pub. L. 105–34, § 1601(c)(3)Subsec. (b)(3)(A). , substituted “Except as provided in regulations prescribed by the Secretary, for purposes of this title” for “For purposes of this title”.

Pub. L. 105–34, § 1601(c)(4)(B)Subsec. (c)(6), (7). , redesignated par. (7) as (6).

Pub. L. 105–34, § 1601(c)(1)Subsec. (e)(1)(B)(iii). , added cl. (iii).

Pub. L. 104–188, § 13011996—Subsec. (b)(1)(A). , substituted “75” for “35”.

Pub. L. 104–188, § 1316(a)(1)Subsec. (b)(1)(B). , 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,”.

Pub. L. 104–188, § 1315Subsec. (b)(2)(A). , 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, § 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),”.

Pub. L. 104–188, § 1308(a)Subsec. (b)(2)(B). , redesignated subpar. (C) as (B). Former subpar. (B) redesignated (A).

Pub. L. 104–188, § 1616(b)(15), struck out “or to which section 593 applies” after “subsection (c) thereof)”.

Pub. L. 104–188, § 1308(a)Subsec. (b)(2)(C) to (E). , redesignated subpars. (D) and (E) as (C) and (D), respectively. Former subpar. (C) redesignated (B).

Pub. L. 104–188, § 1308(b)Subsec. (b)(3). , added par. (3).

Pub. L. 104–188, § 1303Subsec. (c)(2)(A)(ii). , 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’.”

Pub. L. 104–188, § 1303(1)Subsec. (c)(2)(A)(iii). , substituted “2-year period” for “60-day period”.

Pub. L. 104–188, § 1302(a)Subsec. (c)(2)(A)(v). , added cl. (v).

Pub. L. 104–188, § 1302(b)Subsec. (c)(2)(B)(v). , added cl. (v).

Pub. L. 104–188, § 1304Subsec. (c)(5)(B)(iii). , 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)”.

Pub. L. 104–188, § 1308(d)(1)Subsec. (c)(6). , struck out par. (6) which read as follows:

Ownership of stock in certain inactive corporations“(6) .—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.”

Pub. L. 104–188, § 1316(a)(2)Subsec. (c)(7). , added par. (7).

Pub. L. 104–188, § 1302(c)Subsec. (e). , added subsec. (e).

Pub. L. 104–188, § 1316(e)Subsec. (e)(1)(A)(i). , struck out “which holds a contingent interest and is not a potential current beneficiary” after “170(c)”.

Pub. L. 101–2391989—Subsec. (b)(2)(B). 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,”.

Pub. L. 100–6471988—Subsec. (d)(3). substituted “within the meaning of” for “treated as a separate trust under” in last sentence.

Pub. L. 99–514, § 901(d)(4)(G)1986—Subsec. (b)(2)(B). , 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”.

Pub. L. 99–514, § 1879(m)(1)(A)Subsec. (d)(3). , 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).”

Pub. L. 98–369, § 721(c)1984—Subsec. (c)(6). , 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).

Pub. L. 98–369, § 721(f)(3)Subsec. (d)(2)(B)(i). , substituted “corporation” for “S corporation” in heading and text.

Pub. L. 98–369, § 721(f)(1)Subsec. (d)(2)(D). , substituted “15 days and 2 months” for “60 days”.

Pub. L. 98–369, § 721(f)(2)Subsec. (d)(3). , 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”.

Pub. L. 98–369, § 721(f)(2)Subsec. (d)(4). , 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).

Statutory Notes and Related Subsidiaries

Effective Date 2018 Amendment

section 109(a) of Pub. L. 115–141 Pub. L. 108–357 section 109(c) of Pub. L. 115–141 section 501 of this titleAmendment by effective as if included in section 319 of the American Jobs Creation Act of 2004, , see , set out as a note under .

Effective Date of 2017 Amendment

Pub. L. 115–97, title I, § 13541(b)Dec. 22, 2017131 Stat. 2154

January 1, 2018“The amendment made by this section [amending this section] shall take effect on .”

, , , provided that:

Effective Date of 2007 Amendment

Pub. L. 110–28, title VIII, § 8232(c)May 25, 2007121 Stat. 198

“(1)

In general .—

section 1368 of this titleDecember 31, 2006The amendments made by this section [amending this section and ] shall apply to taxable years beginning after .

“(2)

Special rule for treatment as second class of stock .—

December 31, 1996In the case of any taxable year beginning after , restricted bank director stock (as defined in section 1361(f) of the Internal Revenue Code of 1986, as added by this section) shall not be taken into account in determining whether an S corporation has more than 1 class of stock.”

, , , provided that:

Pub. L. 110–28, title VIII, § 8233(b)May 25, 2007121 Stat. 198

December 31, 2006“The amendments made by this section [amending this section] shall apply to taxable years beginning after .”

, , , provided that:

Pub. L. 110–28, title VIII, § 8234(b)May 25, 2007121 Stat. 199

December 31, 2006“The amendments made by this section [amending this section] shall apply to taxable years beginning after .”

, , , provided that:

Effective Date of 2005 Amendment

section 403(b) of Pub. L. 109–135 Pub. L. 108–357 section 403(nn) of Pub. L. 109–135 section 26 of this titleAmendment by effective as if included in the provision of the American Jobs Creation Act of 2004, , to which such amendment relates, see , set out as a note under .

Pub. L. 109–135, title IV, § 413(d)Dec. 21, 2005119 Stat. 2642

Pub. L. 108–357“The amendments made by this section [amending this section and sections 1362 and 4975 of this title] shall take effect as if included in the provisions of the American Jobs Creation Act of 2004 [] to which they relate.”

, , , provided that:

Effective Date of 2004 Amendment

Pub. L. 108–357, title II, § 231(c)(1)Oct. 22, 2004118 Stat. 1433

December 31, 2004“The amendment made by subsection (a) [amending this section] shall apply to taxable years beginning after .”

, , , provided that:

Pub. L. 108–357, title II, § 232(b)Oct. 22, 2004118 Stat. 1434

December 31, 2004“The amendment made by this section [amending this section] shall apply to taxable years beginning after .”

, , , provided that:

Pub. L. 108–357Oct. 22, 2004section 233(e) of Pub. L. 108–357 section 512 of this titleAmendment by section 233(a), (b) of effective , see , set out as a note under .

Pub. L. 108–357, title II, § 234(b)Oct. 22, 2004118 Stat. 1435

December 31, 2004“The amendments made by this section [amending this section] shall apply to taxable years beginning after .”

, , , provided that:

Pub. L. 108–357, title II, § 236(b)Oct. 22, 2004118 Stat. 1435

December 31, 2004“The amendments made by this section [amending this section] shall apply to transfers made after .”

, , , provided that:

Pub. L. 108–357, title II, § 239(b)Oct. 22, 2004118 Stat. 1437

December 31, 2004“The amendment made by this section [amending this section] shall apply to taxable years beginning after .”

, , , provided that:

Effective Date of 2000 Amendment

Pub. L. 106–554 Pub. L. 104–188 Pub. L. 106–554 section 51 of this titleAmendment by effective as if included in the provisions of the Small Business Job Protection Act of 1996, , to which such amendment relates, see section 1(a)(7) [title III, § 316(e)] of , set out as a note under .

Effective Date of 1998 Amendment

Pub. L. 105–206 Pub. L. 105–34 section 6024 of Pub. L. 105–206 section 1 of this titleAmendment by effective, except as otherwise provided, as if included in the provisions of the Taxpayer Relief Act of 1997, , to which such amendment relates, see , set out as a note under .

Effective Date of 1997 Amendment

Pub. L. 105–34 Pub. L. 104–188 section 1601(j) of Pub. L. 105–34 section 23 of this titleAmendment by effective as if included in the provisions of the Small Business Job Protection Act of 1996, , to which it relates, see , set out as a note under .

Effective Date of 1996 Amendment

Pub. L. 104–188Dec. 31, 1996section 1317(a) of Pub. L. 104–188 section 641 of this titleAmendment by sections 1301–1302(c), 1303, 1304, 1308(a), (b), (d)(1), and 1315 of applicable to taxable years beginning after , see , set out as a note under .

Pub. L. 104–188Dec. 31, 1997section 1316(f) of Pub. L. 104–188 section 170 of this titleAmendment by sections 1316(a), (e) of applicable to taxable years beginning after , see , set out as a note under .

section 1616(b)(15) of Pub. L. 104–188Dec. 31, 1995section 1616(c) of Pub. L. 104–188 section 593 of this titleAmendment by applicable to taxable years beginning after , see , set out as a note under .

Effective Date of 1989 Amendment

Pub. L. 101–239 Pub. L. 100–647 section 7817 of Pub. L. 101–239 section 1 of this titleAmendment by effective, except as otherwise provided, as if included in the provision of the Technical and Miscellaneous Revenue Act of 1988, , to which such amendment relates, see , set out as a note under .

Effective Date of 1988 Amendment

Pub. L. 100–647 Pub. L. 99–514 section 1019(a) of Pub. L. 100–647 section 1 of this titleAmendment by effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, , to which such amendment relates, see , set out as a note under .

Effective Date of 1986 Amendment

section 901(d)(4)(G) of Pub. L. 99–514Dec. 31, 1986section 901(e) of Pub. L. 99–514 section 166 of this titleAmendment by applicable to taxable years beginning after , see , set out as a note under .

Pub. L. 99–514, title XVIII, § 1879(m)(2)Oct. 22, 1986100 Stat. 2910

section 1368 of this titleDecember 31, 1982“The amendments made by this subsection [amending this section and ] shall apply to taxable years beginning after .”

, , , provided that:

Effective Date of 1984 Amendment

Pub. L. 98–369, div. A, title VII, § 721(y)July 18, 198498 Stat. 972 Pub. L. 99–514, § 2Oct. 22, 1986100 Stat. 2095

“(1)

In general .—

Pub. L. 97–354Except 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 [].

“(2)

Amendment made by subsection(2) (b).—

December 31, 1980Subparagraph (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 , in taxable years ending after such date.

“(3)

Amendment made by subsection(1) (g).—

If—

“(A)

October 19, 1982July 18, 1984 any portion of a qualified stock purchase is pursuant to a binding contract entered into on or after , and before the date of the enactment of this Act [], 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,

section 1362 of this titlethen the amendment made by paragraph (1) of subsection (g) [amending ] shall not apply to such qualified stock purchase.

“(4)

Amendments made by subsection (l ).—

lsection 1362 of this titleOctober 19, 1982The amendments made by subsection () [amending ] shall apply to any election under section 1362 of the Internal Revenue Code of 1986 (or any corresponding provision of prior law) made after .

“(5)

Amendment made by subsection (t).—

If—

“(A)

July 18, 1984 on or before the date of the enactment of this Act [] 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,

section 1362 of this titlethen the amendment made by subsection (t) [amending ] shall not apply to such S termination year.”

, , , as amended by , , , provided that:

Effective Date

Pub. L. 97–354, § 6Oct. 19, 198296 Stat. 1697 Pub. L. 97–448, title III, § 305(d)(1)(A)Jan. 12, 198396 Stat. 2399 Pub. L. 98–369, div. A, title VII, § 721(i)July 18, 198498 Stat. 969 Pub. L. 99–514, § 2Oct. 22, 1986100 Stat. 2095

“(a)

In General .—

section 1108 of Title 29 section 1376 of this title section 1 of this titleDecember 31, 1982Except 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 , Labor, omitting , and enacting provisions set out as a note under ] shall apply to taxable years beginning after .

“(b)

Transitional Rules.—

“(1)

Sections 1379 and 62(9) continue to apply for 1983 .—

Oct. 19, 1982January 1, 1984Sections 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 []) shall remain in effect for years beginning before .

“(2)

Allowance of exclusion of death benefit .—

section 241(b) of Pub. L. 97–248 section 416 of this title section 239 of Pub. L. 97–248 section 101 of this titleDecember 31, 1982Notwithstanding section 241(b) of the Tax Equity and Fiscal Responsibility Act of 1982 [, set out as a note under ] in the case of amounts received under a plan of an S corporation, the amendment made by section 239 of such Act [, amending ] shall apply with respect to decedents dying after .

“(3)

New passive income rules apply to taxable years beginning during 1982 .—

In the case of a taxable year beginning during 1982—

“(A)

Pub. L. 97–354 sections 1362(d)(3), 1366(f)(3), and 1375 of the Internal Revenue Code of 1986 (as amended by this Act []) shall apply, and

“(B)

Oct. 19, 1982 section 1372(e)(5) of such Code (as in effect on the day before the date of the enactment of this Act []) 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 .—

September 28, 1982In the case of any corporation which on , 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)

July 1, 1982 subchapter S (as in effect on ) 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)

July 12, 1982 as of , such corporation was an electing small business corporation and was described in section 831(a) of such Code,

“(ii)

April 1, 1982 such corporation was formed before , 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)

December 31, 1982December 31, 1984 such corporation is approved for membership on an established insurance exchange pursuant to a written agreement entered into before , 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 .

“(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)

July 1, 1982 subchapter S (as in effect on ) 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)

September 28, 1982 as of , such corporation—

“(I)

was an electing small business corporation, or

“(II)

December 31, 1981September 28, 1982 was a small business corporation which made an election under section 1372(a) after , and before ,

“(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 .—

July 1, 1982For purposes of subparagraph (B), the term ‘substantial shareholder’ means any person who on , 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)

Pub. L. 97–354 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 []).

“(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)

Pub. L. 97–354December 31, 1984December 31, 1982 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 []) shall be applied by substituting ‘’ for ‘’ each place it appears therein.

“(d)

Treatment of Existing Fringe Benefit Plans.—

“(1)

In general .—

September 28, 1982Pub. L. 97–354December 31, 1987In the case of existing fringe benefits of a corporation which as of , was an electing small business corporation, section 1372 of the Internal Revenue Code of 1986 (as added by this Act []) shall apply only with respect to taxable years beginning after .

“(2)

Requirements .—

This subsection shall cease to apply with respect to any corporation after whichever of the following first occurs:

“(A)

December 31, 1982Oct. 19, 1982 the first day of the first taxable year beginning after , 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 []),

“(B)

December 31, 1982 any termination after , of the election of the corporation under subchapter S of chapter 1 of such Code, or

“(C)

Pub. L. 97–354 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 []).

“(3)

Existing fringe benefit .—

September 28, 1982For 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 .

“(e)

Treatment of Certain Elections Under Prior Law .—

Pub. L. 97–354Oct. 19, 1982For purposes of section 1362(g) of the Internal Revenue Code of 1986, as amended by this Act [] (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 []) shall not be taken into account.

“(f)

Taxable Year of S Corporations .—

Pub. L. 97–354Oct. 19, 1982Oct. 19, 1982Section 1378 of the Internal Revenue Code of 1986 (as added by this Act []) shall take effect on the day after the date of the enactment of this Act []. 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 [].”

, , , as amended by , , ; , (k), , ; , , , provided that:

Savings Provision

section 401(d)(1)(D)(xvi) of Pub. L. 115–141Mar. 23, 2018Mar. 23, 2018section 401(e) of Pub. L. 115–141 section 23 of this titleFor provisions that nothing in amendment by be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to , for purposes of determining liability for tax for periods ending after , see , set out as a note under .

Elimination of all Earnings and Profits Attributable to Pre-1983 Years for Certain Corporations

Pub. L. 110–28, title VIII, § 8235May 25, 2007121 Stat. 199

“In the case of a corporation which is—

“(1)

Pub. L. 104–188 described in section 1311(a)(1) of the Small Business Job Protection Act of 1996 [, set out below], and

“(2)

not described in section 1311(a)(2) of such Act,

May 25, 2007January 1, 1983the amount of such corporation’s accumulated earnings and profits (for the first taxable year beginning after the date of the enactment of this Act []) 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 , for which such corporation was an electing small business corporation under subchapter S of the Internal Revenue Code of 1986.”

, , , provided that:

Elimination of Certain Earnings and Profits

Pub. L. 104–188, title I, § 1311(a)Aug. 20, 1996110 Stat. 1784

“If—

“(1)

January 1, 1983 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 , and

“(2)

December 31, 1996 such corporation is an S corporation under subchapter S of chapter 1 of such Code for its first taxable year beginning after ,

January 1, 1983the 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 , for which such corporation was an electing small business corporation under such subchapter S.”

, , , provided that:

Plan Amendments Not Required Until January 1, 1989

Pub. L. 99–514Jan. 1, 1989section 1140 of Pub. L. 99–514 section 401 of this titleFor provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of 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 , see , as amended, set out as a note under .

Transitional Provisions

Pub. L. 97–448, title III, § 305(d)(1)(B)Jan. 12, 198396 Stat. 2399 Pub. L. 99–514, § 2Oct. 22, 1986100 Stat. 2095

“If—

“(i)

September 30, 1982Jan. 12, 1983Pub. L. 97–354 after , and on or before the date of the enactment of this Act [], 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 []) in a transaction to which section 351 of such Code applies, and

“(ii)

March 1, 1983 such corporation is liquidated under section 333 of such Code before ,

then such stock or securities shall not be taken into account under section 333(e)(2) of such Code.”

, , , as amended by , , , provided that: