§1371 — Coordination with subchapter C
52 cases·11 followed·7 distinguished·1 overruled·33 cited—21% support
Statute Text — 26 U.S.C. §1371
Except as otherwise provided in this title, and except to the extent inconsistent with this subchapter, subchapter C shall apply to an S corporation and its shareholders.
No carryforward, and no carryback, arising for a taxable year for which a corporation is a C corporation may be carried to a taxable year for which such corporation is an S corporation.
No carryforward, and no carryback, shall arise at the corporate level for a taxable year for which a corporation is an S corporation.
Nothing in paragraphs (1) and (2) shall prevent treating a taxable year for which a corporation is an S corporation as a taxable year for purposes of determining the number of taxable years to which an item may be carried back or carried forward.
Except as provided in paragraphs (2) and (3) and subsection (d)(3), no adjustment shall be made to the earnings and profits of an S corporation.
In the case of any transaction involving the application of subchapter C to any S corporation, proper adjustment to any accumulated earnings and profits of the corporation shall be made.
Paragraph (1) shall not apply with respect to that portion of a distribution which is treated as a dividend under section 1368(c)(2).
Any election under section 1362 shall be treated as a mere change in the form of conducting a trade or business for purposes of the second sentence of section 50(a)(6).
Notwithstanding an election under section 1362, an S corporation shall continue to be liable for any increase in tax under section 49(b) or 50(a) attributable to credits allowed for taxable years for which such corporation was not an S corporation.
Paragraph (1) of subsection (c) shall not apply to any increase in tax under section 49(b) or 50(a) for which the S corporation is liable.
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 (within the meaning of section 1368(e)).
An S corporation 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 post-termination transition period consent to such election.
In the case of a distribution of money by an eligible terminated S corporation (as defined in section 481(d)) after the post-termination transition period, the accumulated adjustments account shall be allocated to such distribution, and the distribution shall be chargeable to accumulated earnings and profits, in the same ratio as the amount of such accumulated adjustments account bears to the amount of such accumulated earnings and profits.
Treasury Regulations
- Treas. Reg. §Treas. Reg. §1.1371-1 Distributions of money by an eligible terminated S corporation
- Treas. Reg. §Treas. Reg. §1.1371-1(a) Scope and definitions—(1) Scope.
- Treas. Reg. §Treas. Reg. §1.1371-1(b) Characterization of qualified distribution—(1) In general.
- Treas. Reg. §Treas. Reg. §1.1371-1(c) Characterization of excess qualified distribution and non-qualified distributions.
- Treas. Reg. §Treas. Reg. §1.1371-1(d) Examples.
- Treas. Reg. §Treas. Reg. §1.1371-1(e) Applicability date.
- Treas. Reg. §Treas. Reg. §1.1371-1(i) AAA.
- Treas. Reg. §Treas. Reg. §1.1371-1(v) CE&P.
- Treas. Reg. §Treas. Reg. §1.1371-1(x) Historical AE&P.
- Treas. Reg. §Treas. Reg. §1.1371-2 Impact of Audit PTTP on ETSC Period
- Treas. Reg. §Treas. Reg. §1.1371-2(a) Definitions.
- Treas. Reg. §Treas. Reg. §1.1371-2(b) In general.
- Treas. Reg. §Treas. Reg. §1.1371-2(c) Examples.
- Treas. Reg. §Treas. Reg. §1.1371-2(d) Applicability date.
- Treas. Reg. §Treas. Reg. §18.1371-1 Election to treat distributions as dividends during certain post-termination transition periods
52 Citing Cases
Discussion The parties have locked horns on the impact of sections 469(b) and 1371(b)(1). St. Charles contends that section 469 governs and that section 1371(b) has no application under the circumstances herein. Respondent takes a diametrically opposed position and contends that section 1371(b) controls and that therefore section 469 is inapplicable.
In accordance with the much more limited role of earnings and profits in a pass-through system of taxation, section 1371 provides, for taxable years after 1982, that the accumulated earnings and profits that an S corporation carries over from pre-election years when it was a C corporation, generally are not adjusted for the taxable years during which the election is in effect.
Thus, sub-chapter S, of which section 1371 was a part, dealt with the status of a taxpayer by permitting a corporation to continue as the same corporate entity but treating its income and deductions as those of its shareholders and taxing them accordingly.
Section 1371 provides, for taxable years after 1982, that the accumulated earnings and profits that an S corporation carries over from preelection years when it was a C corporation, generally are not adjusted for the taxable years during which the S corporation election is in effect. Sec. 1371(c)(1); Cameron v. Commissioner, supra. Section 1368 set
In accordance with the much more limited role of earnings and profits in a pass-through system of taxation, section 1371 provides, for taxable years after 1982, that the accumulated earnings and profits that an S corporation carries over from preelection years when it was a C corporation generally are not adjusted for the taxable years during which the election is in effect.
§ 385(b) (setting forth five factors that may be included in any regulations prescribed by the Secretary to determine, with respect to a particular factual situation, whether a debtor-creditor relationship exists or a corporation-shareholder relationship exists); see also Hardman v.
Former .section 1 .1371-1(d)(1), Income Tax Regs ., issued under former Code section 1371, provided that partnerships and trusts and not their partners or beneficiaries were treated as the shareholders .
Former section 1.1371 — 1(d)(1), Income Tax Regs., issued under former Code section 1371, provided that partnerships and trusts and not their partners or beneficiaries were treated as the shareholders.
In 1982, G&J elected to be taxed as a “small business corporation” (an S corporation), within the meaning of section 1371 of the Internal Revenue Code of 1954.