Page:United States Statutes at Large Volume 98 Part 1.djvu/1018

 98 STAT. 970 26 USC 1 note.

PUBLIC LAW 98-369—JULY 18, 1984 ence to the corresponding provision as in effect before the enactment of the Subchapter S Revision Act of 1982." (o) ELECTION TO TREAT DISTRIBUTIONS AS DIVIDENDS DURING CERTAIN POST-TERMINATION TRANSITION PERIODS.—Subsection (e) of sec-

26 USC 1371.

tion 1371 (relating to coordination with subchapter C) is amended to read as follows: "(e) CASH DISTRIBUTIONS DURING POST-TERMINATION TRANSITION PERIOD.—

"(1) IN GENERAL.—Any distribution of money by a corporation with respect to its stock during a post-termination transition period shall be applied against and reduce the adjusted basis of the stock, to the extent that the amount of the distribution does not exceed the accumulated adjustments account. "(2) ELECTION TO DISTRIBUTE EARNINGS FIRST.—An S corpora-

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tion may elect to have paragraph (1) not apply to all distributions made during a post-termination transition period described in section 1377(b)(1)(A). Such election shall not be effective unless all shareholders of the S corporation to whom distributions are made by the S corporation during such posttermination transition period consent to such election." (p) CORPORATE PREFERENCE RULES APPLIED TO S CORPORATIONS WHICH WERE RECENT CORPORATIONS.—Subsection (b) of section

26 USC 1363.

26 USC 1378.

1363 (relating to computation of corporation's taxable income) is amended by striking out "and" at the end of paragraph (2), by striking out the period at the end of paragraph (3) and inserting in lieu thereof ", and", and by adding at the end thereof the following new paragraph: "(4) section 291 shall apply if the S corporation (or any predecessor) was a C corporation for any of the 3 immediately preceding taxable years." (q) TREATMENT OF STOCK HELD BY ESTATE OF QUALIFIED TRANS-

FEROR.—Clause (i) of section 1378(c)(3)(B) (relating to existing S corporations required to use permitted year after 50-percent shift in ownership) is amended by striking out "who held" and inserting in lieu thereof "who (or whose estate) held". (r) AMENDMENTS ACCOUNT.—

26 USC 1368.

.iTi^i '^h r

RELATED

TO ACCUMULATED

ADJUSTMENTS

(1) Subparagraph (A) of section 1368(e)(1) (defining accumulated adjustments account) is amended by striking out "(except that" and all that follows through the end thereof and inserting in lieu thereof the following: "(except that no adjustment shall be made for income (and related expenses) which is exempt from tax under this title and the phrase '(but not below zero)' shall be disregarded in section 1367(b)(2)(A))". (2) Subsection (c) of section 1368 (relating to S corporation having earnings and profits) is amended by adding at the end thereof the following new sentence: "Except to the extent provided in regulations, if the distributions during the taxable year exceed the amount in the accumulated adjustments account at the close of the taxable year, for purposes of this subsection, the balance of such account shall be allocated among such distributions in proportion to their respective sizes." (s) SPECIAL RULES FOR CERTAIN EXPENSES OF S CORPORATIONS.—

26 USC 267.

Paragraph (1) of section 267(f) (as in effect on the day before the date of the enactment of this Act) is amended by striking out all that follows subparagraph (B) and inserting in lieu thereof the following: "then any deduction allowable under such sections in respect of

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