Page:United States Statutes at Large Volume 96 Part 2.djvu/321

 PUBLIC LAW 97-354—OCT. 19, 1982

96 STAT. 1683

or termination of an election to be treated as an S corporation shall be treated as a disposition of the business. "SEC. 1374. TAX IMPOSED ON CERTAIN CAPITAL GAINS.

26 USC 1374.

"(a) GENERAL RULE.—If for a taxable year of an S corporation— "(1) the net capital gain of such corporation exceeds $25,000, and exceeds 50 percent of its taxable income for such year, and "(2) the taxable income of such corporation for such year exceeds $25,000, there is hereby imposed a tax (computed under subsection (b)) on the income of such corporation. "(b) AMOUNT OF TAX.—The tax imposed by subsection (a) shall be the lower of— "(1) an amount equal to the tax, determined as provided in section 1201(a), on the amount by which the net capital gain of the corporation for the taxable year exceeds $25,000, or "(2) an amount equal to the tax which would be imposed by section 11 on the taxable income of the corporation for the taxable year if the corporation were not an S corporation. No credit shall be allowable under part IV of subchapter A of this chapter (other than under section 39) against the tax imposed by 26 USC 31. subsection (a). "(c) EXCEPTIONS.—

"(1) IN GENERAL.—Subsection (a) shall not apply to an S corporation for any taxable year if the election under section 1362(a) which is in effect with respect to such corporation for Ante, p. 1672. such taxable year has been in effect for the 3 immediately preceding taxable years. "(2) NEW CORPORATIONS.—Subsection (a) shall not apply to an S corporation if— "(A) it (and any predecessor corporation) has been in existence for less than 4 taxable years, and "(B) an election under section 1362(a) has been in effect with respect to such corporation for each of its taxable years. "(3) PROPERTY WITH SUBSTITUTED BASIS.—If—

"(A) but for paragraph (1) or (2), subsection (a) would apply for the taxable year, "(B) any long-term capital gain is attributable to property acquired by the S corporation during the period beginning 3 years before the first day of the taxable year and ending on the last day of the taxable year, and "(C) the basis of such property is determined in whole or in part by reference to the basis of any property in the hands of another corporation which was not an S corporation throughout all of the period described in subparagraph (B) before the transfer by such other corporation and during which such other corporation was in existence, then subsection (a) shall apply for the taxable year, but the amount of the tax determined under subsection (b) shall not exceed a tax, determined as provided in section 1201(a), on the net capital gain attributable to property acquired as provided in subparagraph (B) and having a basis described in subparagraph (C). "(d) DETERMINATION OF TAXABLE INCOME.—For purposes of subsec-

tions (a)(2) and (b)(2), taxable income of the corporation shall be determined under section 63(a) without regard to—

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