Final rules 1
(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.
Amended 1996
- 1996 Pub. L. 104-188 Pub. L. 104–188 reenacted heading without change and amended text generally. Prior to amendment, text read as follows:
- 1996 “(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.
- 1996 “(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.”
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(b) No carryover between C year and S year
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(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.
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(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.
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(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
Cases: Broadaway v. Commissioner, 111 F.3d 593 (8th Cir. 1997)
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(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.
Amended 1984
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 621(e)(2), substituted “paragraphs (2) and (3) and subsection (d)(3)” for “paragraphs (2) and (3)”.
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(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.
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(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).
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(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)(6).
Amended 1990, 2022, 2025
- 2025 Pub. L. 119-21 Pub. L. 119–21 substituted “section 50(a)(6)” for “section 50(a)(5)”.
- 2022 Pub. L. 117-167 Pub. L. 117–167 substituted “section 50(a)(5)” for “section 50(a)(4)”.
- 1990 Pub. L. 101-508 Pub. L. 101–508, § 11813(b)(23)(A), substituted “section 50(a)(4)” for “section 47(b)”.
(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.
Amended 1990
- 1990 Pub. L. 101-508 Pub. L. 101–508, § 11813(b)(23)(B), substituted “section 49(b) or 50(a)” for “section 47”.
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(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.
Amended 1984, 1990
- 1990 Pub. L. 101-508 Pub. L. 101–508, § 11813(b)(23)(B), substituted “section 49(b) or 50(a)” for “section 47”.
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 721(e)(1), added par. (3).
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(e) Cash distributions during post-termination transition period
Amended 1984
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 721(o), amended subsec. (e) generally, designating existing provisions as par. (1) and adding par. (2).
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(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)).
Amended 1986
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 1899A(33), inserted “(within the meaning of section 1368(e))”.
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(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.
Amended 1984, 1986
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 1899A(34), struck out “(within the meaning of section 1368(e))” after “to such election”.
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 721(x)(3), inserted “(within the meaning of section 1368(e))”.
(f) Cash distributions following post-termination transition period In the case of a distribution of money by an eligible terminated S corporation (as defined in section 481(d)) after the post-termination transition period, the accumulated adjustments account shall be allocated to such distribution, and the distribution shall be chargeable to accumulated earnings and profits, in the same ratio as the amount of such accumulated adjustments account bears to the amount of such accumulated earnings and profits.
Amended 2017
- 2017 Pub. L. 115-97 Pub. L. 115–97 added subsec. (f).