
From the U.S. Code Online via GPO Access
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[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC1367]

 
                     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 II--TAX TREATMENT OF SHAREHOLDERS
 
Sec. 1367. Adjustments to basis of stock of shareholders, etc.


(a) General rule

                       (1) Increases in basis

        The basis of each shareholder's stock in an S corporation shall 
    be increased for any period by the sum of the following items 
    determined with respect to that shareholder for such period:
            (A) the items of income described in subparagraph (A) of 
        section 1366(a)(1),
            (B) any nonseparately computed income determined under 
        subparagraph (B) of section 1366(a)(1), and
            (C) the excess of the deductions for depletion over the 
        basis of the property subject to depletion.

                       (2) Decreases in basis

        The basis of each shareholder's stock in an S corporation shall 
    be decreased for any period (but not below zero) by the sum of the 
    following items determined with respect to the shareholder for such 
    period:
            (A) distributions by the corporation which were not 
        includible in the income of the shareholder by reason of section 
        1368,
            (B) the items of loss and deduction described in 
        subparagraph (A) of section 1366(a)(1),
            (C) any nonseparately computed loss determined under 
        subparagraph (B) of section 1366(a)(1),
            (D) any expense of the corporation not deductible in 
        computing its taxable income and not properly chargeable to 
        capital account, and
            (E) the amount of the shareholder's deduction for depletion 
        for any oil and gas property held by the S corporation to the 
        extent such deduction does not exceed the proportionate share of 
        the adjusted basis of such property allocated to such 
        shareholder under section 613A(c)(11)(B).

(b) Special rules

                          (1) Income items

        An amount which is required to be included in the gross income 
    of a shareholder and shown on his return shall be taken into account 
    under subparagraph (A) or (B) of subsection (a)(1) only to the 
    extent such amount is included in the shareholder's gross income on 
    his return, increased or decreased by any adjustment of such amount 
    in a redetermination of the shareholder's tax liability.

              (2) Adjustments in basis of indebtedness

        (A) Reduction of basis

            If for any taxable year the amounts specified in 
        subparagraphs (B), (C), (D), and (E) of subsection (a)(2) exceed 
        the amount which reduces the shareholder's basis to zero, such 
        excess shall be applied to reduce (but not below zero) the 
        shareholder's basis in any indebtedness of the S corporation to 
        the shareholder.

        (B) Restoration of basis

            If for any taxable year beginning after December 31, 1982, 
        there is a reduction under subparagraph (A) in the shareholder's 
        basis in the indebtedness of an S corporation to a shareholder, 
        any net increase (after the application of paragraphs (1) and 
        (2) of subsection (a)) for any subsequent taxable year shall be 
        applied to restore such reduction in basis before any of it may 
        be used to increase the shareholder's basis in the stock of the 
        S corporation.

          (3) Coordination with sections 165(g) and 166(d)

        This section and section 1366 shall be applied before the 
    application of sections 165(g) and 166(d) to any taxable year of the 
    shareholder or the corporation in which the security or debt becomes 
    worthless.

             (4) Adjustments in case of inherited stock

        (A) In general

            If any person acquires stock in an S corporation by reason 
        of the death of a decedent or by bequest, devise, or 
        inheritance, section 691 shall be applied with respect to any 
        item of income of the S corporation in the same manner as if the 
        decedent had held directly his pro rata share of such item.

        (B) Adjustments to basis

            The basis determined under section 1014 of any stock in an S 
        corporation shall be reduced by the portion of the value of the 
        stock which is attributable to items constituting income in 
        respect of the decedent.

(Added Pub. L. 97-354, Sec. 2, Oct. 19, 1982, 96 Stat. 1679; amended 
Pub. L. 98-369, div. A, title VII, Secs. 721(d), (w), 722(e)(2), July 
18, 1984, 98 Stat. 967, 971, 974; Pub. L. 104-188, title I, 
Secs. 1313(a), 1702(h)(14), Aug. 20, 1996, 110 Stat. 1785, 1874.)


                               Amendments

    1996--Subsec. (a)(2)(E). Pub. L. 104-188, Sec. 1702(h)(14), 
substituted ``section 613A(c)(11)(B)'' for ``section 613A(c)(13)(B)''.
    Subsec. (b)(4). Pub. L. 104-188, Sec. 1313(a), added par. (4).
    1984--Subsec. (a)(2)(E). Pub. L. 98-369, Sec. 722(e)(2), substituted 
``for any oil and gas property held by the S corporation to the extent 
such deduction does not exceed the proportionate share of the adjusted 
basis of such property allocated to such shareholder under section 
613A(c)(13)(B)'' for ``under section 611 with respect to oil and gas 
wells''.
    Subsec. (b)(2)(B). Pub. L. 98-369, Sec. 721(w), substituted ``for 
any taxable year beginning after December 31, 1982, there is'' for ``for 
any taxable year there is''.
    Subsec. (b)(3). Pub. L. 98-369, Sec. 721(d), inserted ``and 166(d)'' 
in heading and text.


                    Effective Date of 1996 Amendment

    Section 1313(b) of Pub. L. 104-188 provided that: ``The amendment 
made by subsection (a) [amending this section] shall apply in the case 
of decedents dying after the date of the enactment of this Act [Aug. 20, 
1996].''
    Amendment by section 1702(h)(14) of Pub. L. 104-188 effective, 
except as otherwise expressly provided, as if included in the provision 
of the Revenue Reconciliation Act of 1990, Pub. L. 101-508, title XI, to 
which such amendment relates, see section 1702(i) of Pub. L. 104-188, 
set out as a note under section 38 of this title.


                    Effective Date of 1984 Amendment

    Amendment by section 721(d), (w) of 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.
    Section 722(b)(3)(B) of Pub. L. 98-369 provided that: ``The 
amendment made by paragraph (2) [amending this section] shall apply to 
taxable years beginning after December 31, 1982.''


                             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.

                  Section Referred to in Other Sections

    This section is referred to in sections 108, 1016, 1366, 1368 of 
this title.
