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Internal Revenue Code, § 1377. Definitions And Special Rule

I.R.C. § 1377(a) Pro Rata Share
For purposes of this subchapter—
I.R.C. § 1377(a)(1) In General
Except as provided in paragraph (2), each shareholder's pro rata share of any item for any taxable year shall be the sum of the amounts determined with respect to the shareholder--
I.R.C. § 1377(a)(1)(A)
by assigning an equal portion of such item to each day of the taxable year, and
I.R.C. § 1377(a)(1)(B)
then by dividing that portion pro rata among the shares outstanding on such day.
I.R.C. § 1377(a)(2) Election To Terminate Year
I.R.C. § 1377(a)(2)(A) In General
Under regulations prescribed by the Secretary, if any shareholder terminates the shareholder's interest in the corporation during the taxable year and all affected shareholders and the corporation agree to the application of this paragraph, paragraph (1) shall be applied to the affected shareholders as if the taxable year consisted of 2 taxable years the first of which ends on the date of the termination.
I.R.C. § 1377(a)(2)(B) Affected Shareholders
For purposes of subparagraph (A), the term “affected shareholders” means the shareholder whose interest is terminated and all shareholders to whom such shareholder has transferred shares during the taxable year. If such shareholder has transferred shares to the corporation, the term ‘affected shareholders’ shall include all persons who are shareholders during the taxable year.
I.R.C. § 1377(b) Post-Termination Transition Period
I.R.C. § 1377(b)(1) In General
For purposes of this subchapter, the term “post-termination transition period” means—
I.R.C. § 1377(b)(1)(A)
the period beginning on the day after the last day of the corporation's last taxable year as an S corporation and ending on the later of--
I.R.C. § 1377(b)(1)(A)(i)
the day which is 1 year after such last day, or
I.R.C. § 1377(b)(1)(A)(ii)
the due date for filing the return for such last year as an S corporation (including extensions),
I.R.C. § 1377(b)(1)(B)
the 120-day period beginning on the date of any determination pursuant to an audit of the taxpayer which follows the termination of the corporation's election and which adjusts a subchapter S item of income, loss, or deduction of the corporation arising during the S period (as defined in section 1368(e)(2)), and
I.R.C. § 1377(b)(1)(C)
the 120-day period beginning on the date of a determination that the corporation's election under section 1362(a) had terminated for a previous taxable year.
I.R.C. § 1377(b)(2) Determination Defined
For purposes of paragraph (1), the term “determination" means—
I.R.C. § 1377(b)(2)(A)
a determination as defined in section 1313(a), or
I.R.C. § 1377(b)(2)(B)
an agreement between the corporation and the Secretary that the corporation failed to qualify as an S corporation.
I.R.C. § 1377(b)(3) Special Rules For Audit Related Post-Termination Transition Periods
I.R.C. § 1377(b)(3)(A) No Application To Carryovers
Paragraph (1)(B) shall not apply for purposes of section 1366(d)(3).
I.R.C. § 1377(b)(3)(B) Limitation On Application To Distributions
Paragraph (1)(B) shall apply to a distribution described in section 1371(e) only to the extent that the amount of such distribution does not exceed the aggregate increase (if any) in the accumulated adjustments account (within the meaning of section 1368(e)) by reason of the adjustments referred to in such paragraph.
I.R.C. § 1377(c) Manner Of Making Elections, Etc.
Any election under this subchapter, and any revocation under section 1362(d)(1), shall be made in such manner as the Secretary shall by regulations prescribe.
(Added Pub. L. 97-354, 2, Oct. 19, 1982, 96 Stat. 1685; Amended Pub. L. 104-188, 1306, 1307, Aug. 20, 1996, 110 Stat. 1755; Pub. L. 105-34, title XVI, Sec. 1601(c)(2)(B), Aug. 5, 1997, 111 Stat 788; Pub. L. 108-311, title IV, Sec. 407(a), Oct. 4, 2004, 118 Stat. 1166.)
BACKGROUND NOTES
AMENDMENTS
2004—Subsec. (b)(3). Pub. L. 108-311, Sec. 407(a), added par. (3).
1996--Subsec. (a)(2). Pub. L. 104-188, Sec. 1306, amended par. (2). Before amendment, par. (2) read as follows:
“(2) Election to terminate year.--Under regulations prescribed by the Secretary, if any shareholder terminates his interest in the corporation during the taxable year and all persons who are shareholders during the taxable year agree to the application of this paragraph, paragraph (1) shall be applied as if the taxable year consisted of 2 taxable years the first of which ends on the date of the termination.”
Subsec. (b)(1). Pub. L. 104-188, Sec. 1307(a), struck “and” at the end of subpar. (A), redesignated subpar. (B) as subpar. (C), and added a new subpar. (B).
Subsec. (b)(2). Pub. L. 104-188, Sec. 1307(b), struck subpars. (A) and (B), redesignated subpar. (C) as subpar. (B), and added a new subpar. (A). Before being struck, subpars. (A) and (B) read as follows:
“(A) a court decision which becomes final,
(B) a closing agreement, or”
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment made by Sec. 407(a) of Pub. L. 108-311 effective as if included in the Small Business Job Protection Act of 1996 [Pub. L. 104-188, Sec. 1307] to which it relates [Effective: taxable years beginning after Dec. 31, 1996].
EFFECTIVE DATE OF 1996 AMENDMENT
Amendments made by 1306 and 1307 of Pub. L. 104-188 effective for taxable years beginning after December 31, 1996. Sec. 1317 of Pub. L. 104-188 provided the following special rule:
“(b) Treatment of Certain Elections Under Prior Law.--For purposes of section 1362(g) of the Internal Revenue Code of 1986 (relating to election after termination), any termination under section 1362(d) of such Code in a taxable year beginning before January 1, 1997, shall not be taken into account.”
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31, 1982, see section 6(a) of Pub. L. 97-354, set out as a note under section 1361 of this title.
RULE FOR 120-DAY PERIOD EXPIRATION
Section 1601(c)(2)(B) of Pub. L. 105-34 provided that “In no event shall the 120-day period referred to in section 1377(b)(1)(B) of the Internal Revenue Code of 1986 (as added by such section 1307) expire before the end of the 120-day period beginning on the date of the enactment of this Act [enacted: Aug. 5, 1997].”
PRIOR PROVISIONS
A prior section 1377, added Pub. L. 85-866, title I, 64(a), Sept. 2, 1958, 72 Stat. 1656, and amended Pub. L. 94-455, title IX, 902(b)(1), title XIX, 1901(b)(32)(B)(iv), Oct. 4, 1976, 90 Stat. 1608, 1800, related to special rules applicable to earnings and profits of electing small business corporations, prior to the general revision of this subchapter by section 2 of Pub. L. 97-354.