Page:United States Statutes at Large Volume 98 Part 1.djvu/1015

 PUBLIC LAW 98-369—JULY 18, 1984 "(A) SUBSECTIONS (a),

98 STAT. 967

(b), AND ( O TO BE APPLIED AT

CORPORATE LEVEL.—In the case of an S corporation, subsections (a), (b), and (c) shall be applied at the corporate level. "(B) REDUCTION IN CARRYOVER OF DISALLOWED LOSSES AND

DEDUCTIONS.—In the case of an S corporation, for purposes of subparagraph (A) of subsection (b)(2), any loss or deduction which is disallowed for the taxable year of the discharge under section 1366(d)(1) shall be treated as a net operating loss for such taxable year. The preceding sentence shall not apply to any discharge to the extent that subsection (a)(1)(C) applies to such discharge. " '

"(C) COORDINATION WITH BASIS ADJUSTMENTS UNDER SEC-

TION 1367 (b)(2).—For purposes of subsection (e)(6), a shareholder's adjusted basis in indebtedness of an S corporation shall be determined without regard to any adjustments made under section 1367(b)(2)." (c) TREATMENT OF INACTIVE SUBSIDIARIES.—Paragraph (6) of section 1361(c) (relating to ownership of stock in certain inactive corporations) is amended to read as follows:

26 USC 1361.

"(6) OWNERSHIP OF STOCK IN CERTAIN INACTIVE CORPORA-

TIONS.—For purposes of subsection (b)(2)(A), a corporation shall not be treated as a member of an affiliated group during any period within a taxable year by reason of the ownership of stock in another corporation if such other corporation— "(A) has not begun business at any time on or before the close of such period, and "(B) does not have gross income for such period." (d) TREATMENT OF WORTHLESS DEBT.—Paragraph (3) of section 1367(b) (relating to coordination with section 165(g)) is amended to read as follows: "(3) COORDINATION WITH SECTIONS 165(g) AND 166(d).—This section and section 1366 shall be applied before the application of sections 165(g) and 166(d) to any taxable year of the shareholder or the corporation in which the security or debt becomes worthless."

26 USC 1367.

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(e) ADJUSTMENT TO EARNINGS AND PROFITS FOR RECAPTURE UNDER SECTION 47.—

(1) Subsection (d) of section 1371 (relating to coordination with investment credit recapture) is amended by adding at the end thereof the following new paragraph:

26 USC 1371,

"(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 47 for which the S corporation is liable." (2) Paragraph (1) of section 1371(c) is amended by striking out "paragraphs (2) and (3)" and inserting in lieu thereof "paragraphs (2) and (3) and subsection (d)(3)". (f) QUALIFIED SUBCHAPTER S TRUSTS.—

(1) GRACE PERIOD.—Subparagraph (D) ef section 1361(d)(2) (relating to grade period) is amended by striking out "60 days" and inserting in lieu thereof "15 days and 2 months". (2) DEFINITION OF QUALIFIED SUBCHAPTER S TRUST.—Subsection

(d) of section 1361 (relating to special rule for qualified subchapter S trust) is amended by striking out paragraphs (3) and (4) and inserting in lieu thereof the following:

26 USC 1361.

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