
From the U.S. Code Online via GPO Access
[wais.access.gpo.gov]
[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC1371]

 
                     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 III--SPECIAL RULES
 
Sec. 1371. Coordination with subchapter C


(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.

(b) No carryover between C year and S year

                      (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.

                    (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.

               (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

                           (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.

           (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.

        (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).

(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)(4).

               (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.

        (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.

(e) Cash distributions during post-termination transition period

                           (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)).

              (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.

(Added Pub. L. 97-354, Sec. 2, Oct. 19, 1982, 96 Stat. 1681; amended 
Pub. L. 98-369, div. A, title VII, Sec. 721(e), (o), (x)(3), July 18, 
1984, 98 Stat. 967, 970, 971; Pub. L. 99-514, title XVIII, 
Sec. 1899A(33), (34), Oct. 22, 1986, 100 Stat. 2960; Pub. L. 101-508, 
title XI, Sec. 11813(b)(23), Nov. 5, 1990, 104 Stat. 1388-555; Pub. L. 
104-188, title I, Sec. 1310, Aug. 20, 1996, 110 Stat. 1784.)


                            Prior Provisions

    A prior section 1371, added Pub. L. 85-866, title I, Sec. 64(a), 
Sept. 2, 1958, 72 Stat. 1650; amended Pub. L. 86-376, Sec. 2(a), Sept. 
23, 1959, 73 Stat. 699; Pub. L. 88-272, title II, Sec. 233(a), Feb. 26, 
1964, 78 Stat. 112; Pub. L. 94-455, title IX, Sec. 902(a)(1), (2), 
(c)(1), (2), Oct. 4, 1976, 90 Stat. 1608, 1609; Pub. L. 95-600, title 
III, Secs. 341, 342, title VII, Sec. 701(y)(1), Nov. 6, 1978, 92 Stat. 
2843, 2921; Pub. L. 96-589, Sec. 5(d), Dec. 24, 1980, 94 Stat. 3406; 
Pub. L. 97-34, title II, Secs. 233(a), 234(a), (b), Aug. 13, 1981, 95 
Stat. 250, 251; Pub. L. 97-448, title I, Sec. 102(i)(1), Jan. 12, 1983, 
96 Stat. 2372, related to definitions applicable to election of small 
business corporations as to taxable status, prior to the general 
revision of this subchapter by section 2 of Pub. L. 97-354.


                               Amendments

    1996--Subsec. (a). Pub. L. 104-188 reenacted heading without change 
and amended text generally. Prior to amendment, text read as follows:
    ``(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.
    ``(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.''
    1990--Subsec. (d)(1). Pub. L. 101-508, Sec. 11813(b)(23)(A), 
substituted ``section 50(a)(4)'' for ``section 47(b)''.
    Subsec. (d)(2), (3). Pub. L. 101-508, Sec. 11813(b)(23)(B), 
substituted ``section 49(b) or 50(a)'' for ``section 47''.
    1986--Subsec. (e)(1). Pub. L. 99-514, Sec. 1899A(33), inserted 
``(within the meaning of section 1368(e))''.
    Subsec. (e)(2). Pub. L. 99-514, Sec. 1899A(34), struck out ``(within 
the meaning of section 1368(e))'' after ``to such election''.
    1984--Subsec. (c)(1). Pub. L. 98-369, Sec. 621(e)(2), substituted 
``paragraphs (2) and (3) and subsection (d)(3)'' for ``paragraphs (2) 
and (3)''.
    Subsec. (d)(3). Pub. L. 98-369, Sec. 721(e)(1), added par. (3).
    Subsec. (e). Pub. L. 98-369, Sec. 721(o), amended subsec. (e) 
generally, designating existing provisions as par. (1) and adding par. 
(2).
    Subsec. (e)(2). Pub. L. 98-369, Sec. 721(x)(3), inserted ``(within 
the meaning of section 1368(e))''.


                    Effective Date of 1996 Amendment

    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 of 1990 Amendment

    Amendment by Pub. L. 101-508 applicable to property placed in 
service after Dec. 31, 1990, but not applicable to any transition 
property (as defined in section 49(e) of this title), any property with 
respect to which qualified progress expenditures were previously taken 
into account under section 46(d) of this title, and any property 
described in section 46(b)(2)(C) of this title, as such sections were in 
effect on Nov. 4, 1990, see section 11813(c) of Pub. L. 101-508, set out 
as a note under section 29 of this title.


                    Effective Date of 1984 Amendment

    Amendment by 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.


                             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.


                            Savings Provision

    For provisions that nothing in amendment by Pub. L. 101-508 be 
construed to affect treatment of certain transactions occurring, 
property acquired, or items of income, loss, deduction, or credit taken 
into account prior to Nov. 5, 1990, for purposes of determining 
liability for tax for periods ending after Nov. 5, 1990, see section 
11821(b) of Pub. L. 101-508, set out as a note under section 29 of this 
title.


           Plan Amendments Not Required Until January 1, 1989

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

                  Section Referred to in Other Sections

    This section is referred to in sections 1374, 6655 of this title.
