
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: 26USC1377]

 
                     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 IV--DEFINITIONS; MISCELLANEOUS
 
Sec. 1377. Definitions and special rule


(a) Pro rata share

    For purposes of this subchapter--

                           (1) In general

        Except as provided in paragraph (2), each shareholder's pro rata 
    share of any item for any taxable year shall be the sum of the 
    amounts determined with respect to the shareholder--
            (A) by assigning an equal portion of such item to each day 
        of the taxable year, and
            (B) then by dividing that portion pro rata among the shares 
        outstanding on such day.

                   (2) Election to terminate year

        (A) In general

            Under regulations prescribed by the Secretary, if any 
        shareholder terminates the shareholder's interest in the 
        corporation during the taxable year and all affected 
        shareholders and the corporation agree to the application of 
        this paragraph, paragraph (1) shall be applied to the affected 
        shareholders as if the taxable year consisted of 2 taxable years 
        the first of which ends on the date of the termination.

        (B) Affected shareholders

            For purposes of subparagraph (A), the term ``affected 
        shareholders'' means the shareholder whose interest is 
        terminated and all shareholders to whom such shareholder has 
        transferred shares during the taxable year. If such shareholder 
        has transferred shares to the corporation, the term ``affected 
        shareholders'' shall include all persons who are shareholders 
        during the taxable year.

(b) Post-termination transition period

                           (1) In general

        For purposes of this subchapter, the term ``post-termination 
    transition period'' means--
            (A) the period beginning on the day after the last day of 
        the corporation's last taxable year as an S corporation and 
        ending on the later of--
                (i) the day which is 1 year after such last day, or
                (ii) the due date for filing the return for such last 
            year as an S corporation (including extensions),

            (B) the 120-day period beginning on the date of any 
        determination pursuant to an audit of the taxpayer which follows 
        the termination of the corporation's election and which adjusts 
        a subchapter S item of income, loss, or deduction of the 
        corporation arising during the S period (as defined in section 
        1368(e)(2)), and
            (C) the 120-day period beginning on the date of a 
        determination that the corporation's election under section 
        1362(a) had terminated for a previous taxable year.

                      (2) Determination defined

        For purposes of paragraph (1), the term ``determination'' 
    means--
            (A) a determination as defined in section 1313(a), or
            (B) an agreement between the corporation and the Secretary 
        that the corporation failed to qualify as an S corporation.

(c) Manner of making elections, etc.

    Any election under this subchapter, and any revocation under section 
1362(d)(1), shall be made in such manner as the Secretary shall by 
regulations prescribe.

(Added Pub. L. 97-354, Sec. 2, Oct. 19, 1982, 96 Stat. 1685; amended 
Pub. L. 104-188, title I, Secs. 1306-1307(b), Aug. 20, 1996, 110 Stat. 
1780.)


                            Prior Provisions

    A prior section 1377, added Pub. L. 85-866, title I, Sec. 64(a), 
Sept. 2, 1958, 72 Stat. 1656; amended Pub. L. 94-455, title IX, 
Sec. 902(b)(1), title XIX, Sec. 1901(b)(32)(B)(iv), Oct. 4, 1976, 90 
Stat. 1608, 1800, related to special rules applicable to earnings and 
profits of electing small business corporations, prior to the general 
revision of this subchapter by section 2 of Pub. L. 97-354.


                               Amendments

    1996--Subsec. (a)(2). Pub. L. 104-188, Sec. 1306, reenacted heading 
without change and amended text generally. Prior to amendment, text read 
as follows: ``Under regulations prescribed by the Secretary, if any 
shareholder terminates his interest in the corporation during the 
taxable year and all persons who are shareholders during the taxable 
year agree to the application of this paragraph, paragraph (1) shall be 
applied as if the taxable year consisted of 2 taxable years the first of 
which ends on the date of the termination.''
    Subsec. (b)(1)(A) to (C). Pub. L. 104-188, Sec. 1307(a), struck out 
``and'' at end of subpar. (A)(ii), added subpar. (B), and redesignated 
former subpar. (B) as (C).
    Subsec. (b)(2)(A) to (C). Pub. L. 104-188, Sec. 1307(b), added 
subpar. (A), redesignated subpar. (C) as (B), and struck out former 
subpars. (A) and (B) which read as follows:
    ``(A) a court decision which becomes final,
    ``(B) a closing agreement, or''.


                    Effective Date of 1996 Amendments

    Pub. L. 105-34, title XVI, Sec. 1601(c)(2), Aug. 5, 1997, 111 Stat. 
1087, provided that:
    ``(A) Notwithstanding section 1317 of the Small Business Job 
Protection Act of 1996 [Pub. L. 104-188, enacting provisions set out as 
notes under sections 641 and 1362 of this title], the amendments made by 
subsections (a) and (b) of section 1307 of such Act [amending this 
section] shall apply to determinations made after December 31, 1996.
    ``(B) In no event shall the 120-day period referred to in section 
1377(b)(1)(B) of the Internal Revenue Code of 1986 (as added by such 
section 1307) expire before the end of the 120-day period beginning on 
the date of the enactment of this Act [Aug. 5, 1997].''
    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

    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 section 1371 of this title.
