Page:United States Statutes at Large Volume 96 Part 2.djvu/315

 PUBLIC LAW 97-354—OCT. 19, 1982

96 STAT. 1677

"(1) IN GENERAL.—Except as provided in paragraph (2), any election affecting the computation of items derived from an S corporation shall be made by the corporation. "(2) EXCEPTIONS.—In the case of an S corporation, elections under the following provisions shall be made by each shareholder separately— "(A) subsection (b)(5) or (d)(4) of section 108 (relating to income from discharge of indebtedness), "(B) section 163(d) (relating to limitation on interest on investment indebtedness), "(C) section 617 (relating to deduction and recapture of certain mining exploration expenditures), and "(D) section 901 (relating to taxes of foreign countries and possessions of the United States). "(d) DISTRIBUTIONS OF APPRECIATED PROPERTY.—If—

"(1) an S corporation makes a distribution of property (other than an obligation of such corporation) with respect to its stock, and "(2) the fair market value of such property exceeds its adjusted basis in the hands of the S corporation, then, notwithstanding any other provision of this subtitle, gain shall be recognized to the S corporation on the distribution in the same manner as if it had sold such property to the distributee at its fair market vsdue.

"PART II—TAX TREATMENT OF SHAREHOLDERS "Sec. 1366. Pass-thru of items to shareholders. "Sec. 1367 Adjustments to basis of stock of shareholders, etc. "Sec. 1368. Distributions. "SEC. 1366. PASS-THRU OF ITEMS TO SHAREHOLDERS. "(a) DETERMINATION OF SHAREHOLDER'S TAX LIABILITY.-

"(1) IN GENERAL.—In determining the tax under this chapter of a shareholder for the shareholder's taxable year in which the taxable year of the S corporation ends (or for the final taxable year of a shareholder who dies before the end of the corporation's taxable year), there shall be taken into account the shareholder's pro rata share of the corporation's— "(A) items of income (including tax-exempt income), loss, deduction, or credit the separate treatment of which could affect the liability for tax of any shareholder, and "(B) nonseparately computed income or loss. For purposes of the preceding sentence, the items referred to in subparagraph (A) shall include amounts described in paragraph (4) or (6) of section 702(a). "(2) NONSEPARATELY COMPUTED INCOME OR LOSS DEFINED.—For

purposes of this subchapter, the term 'nonseparately computed income or loss' means gross income minus the deductions allowed to the corporation under this chapter, determined by excluding all items described in paragraph (I)(A). "(b) CHARACTER PASSED THRU.—The character of any item included in a shareholder's pro rata share under paragraph (1) of subsection (a) shall be determined as if such item were realized directly from the source from which realized by the corporation, or incurred in the same manner as incurred by the corporation.

26 USC 1366.

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