Page:United States Statutes at Large Volume 96 Part 2.djvu/317

 PUBLIC LAW 97-354—OCT. 19, 1982

96 STAT. 1679

"(A) the amount of the corporation's long-term capital gains for the taxable year shall be reduced by the amount of such tax, and "(B) if the amount of such tax exceeds the amount of such long-term capital gains, the corporation's gains from sales or exchanges of property described in section 1231 shall be reduced by the amount of such excess. For purposes of the preceding sentence, the term 'long-term capital gain' shall not include any gain from the sale or exchange of property described in section 1231.

"Long-term capital gam."

"(3) REDUCTION IN PASS-THRU FOR TAX IMPOSED ON EXCESS NET

PASSIVE INCOME.—If any tax is imposed under section 1375 for Post, p. 1684. any taxable year on an S corporation, for purposes of subsection (a), each item of passive investment income shall be reduced by an amount which bears the same ratio to the amount of such tax as— "(A) the amount of such item, bears to "(B) the total passive investment income for the taxable year. "(g) CROSS REFERENCE.— "For rules relating to procedures for determining the tax treatment of subchapter S items, see subchapter D of chapter 63. •SEC. 1367. ADJUSTMENTS TO BASIS OF STOCK OF SHAREHOLDERS, ETC.

26 USC 1367.

"(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), Ante, p. 1677. "(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)(l), "(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 under section 611 with respect to oil and gas wells. "(b) SPECIAL RULES.— "(1) INCOME ITEMS.—An amount which is required to be in-

cluded 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, in-

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