§ 1375 Tax imposed when passive investment income of corporation having accumulated earnings and profits exceeds 25 percent of gross receipts

OLRC 119-134 · eCFR 2026-10-19 · 1 regs · 5 amending Acts · cited by 5 sections

Enacted 1982 · Pub. L. 97-354 Amended · 5 Acts

198219841986198819962005(a) General rule(b) Definitions(c) Credits not allowable(d) Waiver of tax in certain cases
Prior provisions 2
  • A prior section 1375, added Pub. L. 85–866, title I, § 64(a), Sept. 2, 1958, 72 Stat. 1654; amended Pub. L. 88–272, title II, §§ 201(d)(13), 233(b), Feb. 26, 1964, 78 Stat. 32, 112; Pub. L. 89–389, §§ 1(a), (b), 2(b)(4), Apr. 14, 1966, 80 Stat. 111, 114; Pub. L. 91–172, title III, § 301(b)(11), Dec. 30, 1969, 83 Stat. 586; Pub. L. 94–455, title XIX, §§ 1901(a)(151), (b)(33)(Q), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1788, 1802, 1834; Pub. L. 95–600, title VII, § 703(j)(6), Nov. 6, 1978, 92 Stat. 2941, related to special rules applicable to distributions of electing small business corporations, prior to the general revision of this subchapter by section 2 of Pub. L. 97–354.
  • A prior section 1376, added Pub. L. 85–866, title I, § 64(a), Sept. 2, 1958, 72 Stat. 1655, related to adjustment to basis of stock of, and indebtedness owing, shareholders, prior to the general revision of this subchapter by section 2 of Pub. L. 97–354.
Connections Cited by 5 · Cites 7
§ 1375 Tax imposed when passive investment income of corporation having accumulated earnings and profits exceeds 25 percent of gross receipts
§ 1.1375-1 Tax imposed when passive investment income of corporation having subchapter C earnings and profits exceed 25 percent of gross receipts.
Amended 1996
  • 1996 Pub. L. 104-188 Pub. L. 104–188, § 1311(b)(2)(C), substituted “accumulated” for “subchapter C” in section catchline.

(a) General rule If for the taxable year an S corporation has—

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    (1) accumulated earnings and profits at the close of such taxable year, and

    Amended 1996
    • 1996 Pub. L. 104-188 Pub. L. 104–188, § 1311(b)(2)(A), substituted “accumulated” for “subchapter C”.

    (2) gross receipts more than 25 percent of which are passive investment income,

    then there is hereby imposed a tax on the income of such corporation for such taxable year. Such tax shall be computed by multiplying the excess net passive income by the highest rate of tax specified in section 11(b).

    (b) Definitions For purposes of this section—

    (1) Excess net passive income

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      (A) In general Except as provided in subparagraph (B), the term “excess net passive income” means an amount which bears the same ratio to the net passive income for the taxable year as—

      (i) the amount by which the passive investment income for the taxable year exceeds 25 percent of the gross receipts for the taxable year, bears to

      (ii) the passive investment income for the taxable year.

      (B) Limitation The amount of the excess net passive income for any taxable year shall not exceed the amount of the corporation’s taxable income for such taxable year as determined under section 63(a)—

      Amended 1986, 1988
      • 1988 Pub. L. 100-647 Pub. L. 100–647, § 1006(f)(5)(B), amended subpar. (B) generally. Prior to amendment, subpar. (B) read as follows: “The amount of the excess net passive income for any taxable year shall not exceed the corporation’s taxable income for the taxable year (determined in accordance with section 1374(d)(4)).”
      • 1986 Pub. L. 99-514 Pub. L. 99–514 substituted “section 1374(d)(4)” for “section 1374(d)”.
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        (i) without regard to the deductions allowed by part VIII of subchapter B (other than the deduction allowed by section 248, relating to organization expenditures), and

        (ii) without regard to the deduction under section 172.

        (2) Net passive income The term “net passive income” means—

        (B) the deductions allowable under this chapter which are directly connected with the production of such income (other than deductions allowable under section 172 and part VIII of subchapter B).

        (3) Passive investment income, etc. The terms “passive investment income” and “gross receipts” have the same respective meanings as when used in paragraph (3) of section 1362(d).

        Amended 1996
        • 1996 Pub. L. 104-188 Pub. L. 104–188, § 1311(b)(2)(B), amended par. (3) generally. Prior to amendment, par. (3) read as follows:
        • 1996 “(3) Passive investment income; etc.—The terms ‘subchapter C earnings and profits’, ‘passive investment income’, and ‘gross receipts’ shall have the same respective meanings as when used in paragraph (3) of section 1362(d).”
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          (4) Coordination with section 1374 Notwithstanding paragraph (3), the amount of passive investment income shall be determined by not taking into account any recognized built-in gain or loss of the S corporation for any taxable year in the recognition period. Terms used in the preceding sentence shall have the same respective meanings as when used in section 1374.

          Amended 1988

          (c) Credits not allowable No credit shall be allowed under part IV of subchapter A of this chapter (other than section 34) against the tax imposed by subsection (a).

          Amended 1984, 1988
          • 1988 Pub. L. 100-647 Pub. L. 100–647, § 1006(f)(5)(D), amended subsec. (c) generally, in heading substituting “Credits not allowable” for “Special rules”, and in text substituting “No credit” for “(1) Disallowance of credit.—No credit”, and striking out par. (2) which related to coordination with section 1374.
          • 1984 Pub. L. 98-369 Pub. L. 98–369, § 474(r)(28), substituted “section 34” for “section 39”.
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            (d) Waiver of tax in certain cases If the S corporation establishes to the satisfaction of the Secretary that—

            “If the S corporation establishes to the satisfaction of the Secretary that—” Opening words
            Textual readingALL OF= Secretary may waive the tax

            (1) it determined in good faith that it had no accumulated earnings and profits at the close of a taxable year, and

            Amended 2005
            • 2005 Pub. L. 109-135 Pub. L. 109–135 substituted “accumulated” for “subchapter C”.

            (2) during a reasonable period of time after it was determined that it did have accumulated earnings and profits at the close of such taxable year such earnings and profits were distributed,

            “Reasonable” implies facts and circumstances. Cited by Reg. § 1.1368-1(d)(2)

            Amended 2005
            • 2005 Pub. L. 109-135 Pub. L. 109–135 substituted “accumulated” for “subchapter C”.
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              the Secretary may waive the tax imposed by subsection (a) for such taxable year.

              Amended 1984
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