Page:United States Statutes at Large Volume 98 Part 1.djvu/1019

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 971

such amount shall be allowable as of the day as of which such amount is includible in the gross income of the person to whom the payment is made (or, if later, as of the day on which it would be so allowable but for this paragraph)." (t) PRO RATA ALLOCATION FOR S TERMINATION YEAR NOT To APPLY

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IF 50-PERCENT CHANGE IN OWNERSHIP.—Paragraph (6) of section

1362(e) (relating to special rules) is amended by adding at the end Ante, p. 968. thereof the following new subparagraph: .:.. J.. "(D) PRO RATA ALLOCATION FOR S TERMINATION YEAR NOT TO APPLY IF 50-PERCENT CHANGE IN O W N E R S H I P. — Paragraph

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(2) shall not apply to an S termination year if there is a sale or exchange of 50 percent or more of the stock in such corporation during such year." (u) TREATMENT OF PREDECESSOR CORPORATION UNDER SECTION

1374.—Paragraph (2) of section 1374(c) (relating to exception for new 26 USC. 1374. corporations) is amended— (1) by striking out "(and any predecessor corporation)" in subparagraph (A), and (2) by adding at the end thereof the following new sentence: "To the extent provided in regulations, an S corporation and any predecessor corporation shall be treated as 1 corporation for purposes of this paragraph and paragraph (1)." (v) AUTHORITY TO WAIVE TAX ON PASSIVE INVESTMENT INCOME.—

Section 1375 (relating to tax imposed when passive investment 26 USC 1375. income of corporation having subchapter C earnings and profits exceeds 25 percent of gross receipts) is amended by adding at the end thereof the following new subsection: "(d) WAIVER OF TAX IN CERTAIN CASES.—If the S corporation establishes to the satisfaction of the Secretary that— "(1) it determined in good faith that it had no subchapter C earnings and profits at the close of a taxable year, and "(2) during a reasonable period of time after it was determined that it did have subchapter C earnings and profits at the close of such taxable year such earnings and profits were distributed, the Secretary may waive the tax imposed by subsection (a) for such taxable year." (w) APPLICATION OF DEBT RESTORATION RULES.—Subparagraph (B)

of section 1367(b)(2) (relating to adjustments in basis of indebtedness) is amended by striking out "for any taxable year there is" and inserting in lieu thereof "for any taxable year beginning after December 31, 1982, there is",

26 USC 1367.

(x) CLERICAL AMENDMENTS.—

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(1) Clause (i) of section 48(k)(5)(D) is amended by striking out "electing small business corporation" and inserting in lieu thereof "S corporation". (2) Subparagraph (B) of section 465(a)(1) (relating to limitation to amount at risk) is amended by striking out "a corporation" and inserting in lieu thereof "a C corporation". (3) Subsection (e) of section 1371 (relating to cash distributions during post-termination transition period) is amended by inserting before the period at the end thereof the following: "(within the meaning of section 1368(e))". (4) Paragraph (2) of section 6659(f) is amended by striking out "section 465(a)(1)(C)" and inserting in lieu thereof "section 465(a)(1)(B)".

26 USC 48. ,^ 26 USC 465. Ante, p. 970.

Ante, p. 694.

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