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26 U.S.C. § 1371 — Coordination with subchapter C
Federal law — U.S. Code and appendices · legal_authorities
**(a) Application of subchapter C rules** 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.
**(b) No carryover between C year and S year**
(1) **From C year to S year** — 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.
(2) **No carryover from S year** — No carryforward, and no carryback, shall arise at the corporate level for a taxable year for which a corporation is an S corporation.
(3) **Treatment of S year as elapsed year** — 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.
**(c) Earnings and profits**
(1) **In general** — 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.
(2) **Adjustments for redemptions, liquidations, reorganizations, divisives, etc.** — 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.
(3) **Adjustments in case of distributions treated as dividends under section 1368(c)(2)** — Paragraph (1) shall not apply with respect to that portion of a distribution which is treated as a dividend under section 1368(c)(2).
**(d) Coordination with investment credit recapture**
(1) **No recapture by reason of election** — Any election under section 1362 shall be treated as a me
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Source location: Title 26, Chapter 1, § 1371; chapter-001-normal-taxes-and-surtaxes.md
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**(a) Application of subchapter C rules** 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.
**(b) No carryover between C year and S year**
(1) **From C year to S year** — 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.
(2) **No carryover from S year** — No carryforward, and no carryback, shall arise at the corporate level for a taxable year for which a corporation is an S corporation.
(3) **Treatment of S year as elapsed year** — 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.
**(c) Earnings and profits**
(1) **In general** — 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.
(2) **Adjustments for redemptions, liquidations, reorganizations, divisives, etc.** — 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.
(3) **Adjustments in case of distributions treated as dividends under section 1368(c)(2)** — Paragraph (1) shall not apply with respect to that portion of a distribution which is treated as a dividend under section 1368(c)(2).
**(d) Coordination with investment credit recapture**
(1) **No recapture by reason of election** — 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).
(2) **Corporation continues to be liable** — 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.
(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 49(b) or 50(a) for which the S corporation is liable.
**(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 (within the meaning of section 1368(e)).
(2) **Election to distribute earnings first** — 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.
**(f) Cash distributions following post-termination transition period** 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.
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Application of tax** The tax imposed by section 1(e) shall apply to the taxable income of estates or of any kind of property held in trust, including—
(1) income accumulated in trust for the benefit of unborn or unascertained persons or persons with contingent interests, and income accumulated or held for future distribution under the terms of the will or trust;
(2) income which is to be distributed currently by the fiduciary to the beneficiaries, and income collected by a guardian of an infant which is to be held or distributed as the court may direct;
(3) income received by estates of deceased persons during the period of administration or settlement of the estate; and
(4) income which, in the discretion of the fiduciary, may be either distributed to the beneficiaries or accumulated.
**(b) Computation and payment** The taxable income of an estate or trust shall be computed in the same manner as in the case of an individual, except as otherwise provided in this part. The tax shall be computed on such taxable income and shall be paid by the fiduciary. For purposes of this subsection, a foreign trust or foreign estate shall be treated as a nonresident alien individual who is not present in the United States at any time.
**(c) Special rules for taxation of electing small business trusts**
(1) **In general** — For purposes of this chapter—
(A) the portion of any electing small business trust which consists of stock in 1 or more S corporations shall be treated as a separate trust, and
(B) the amount of the tax imposed by this chapter on such separate trust shall be determined with the modifications of paragraph (2).
(2) **Modifications** — For purposes of paragraph (1), the modifications of this paragraph are the following:
(A) Except as provided in s
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Energy credit**
(1) **In general** — For purposes of section 46, except as provided in paragraphs (1)(B), (2)(B), and (3)(B) of subsection (c), the energy credit for any taxable year is the energy percentage of the basis of each energy property placed in service during such taxable year.
(2) **Energy percentage**
(A) *In general* — Except as provided in paragraphs (6) and (7), the energy percentage is—
(i) 6 percent in the case of—
(I) qualified fuel cell property,
(II) energy property described in clause (i) or (iii) of paragraph (3)(A) but only with respect to property the construction of which begins before January 1, 2025,
(III) energy property described in paragraph (3)(A)(ii),
(IV) qualified small wind energy property,
(V) waste energy recovery property,
(VI) energy storage technology,
(VII) qualified biogas property,
(VIII) microgrid controllers, and
(IX) energy property described in clauses (v) and (vii) of paragraph (3)(A), and
(ii) in the case of any energy property to which clause (i) does not apply, 0 percent.
(B) *Coordination with rehabilitation credit* — The energy percentage shall not apply to that portion of the basis of any property which is attributable to qualified rehabilitation expenditures.
(C) *Nonapplication of increases to energy percentage* — For purposes of energy property described in subparagraph (A)(ii), the energy percentage applicable to such property pursuant to such subparagraph shall not be increased or otherwise adjusted by any provision of this section.
(3) **Energy property** — For purposes of this subpart, the term “energy property” means any property—
(A) which is—
(i) equipment which uses solar energy to generate electricity, to he
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Social security benefits and tier I railroad retirement benefits** Benefits payable under the old-age, survivors, and disability insurance program established under title II of the Social Security Act ([42 U.S.C. 401](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title42-section401&num=0&edition=prelim) et seq.), and benefits payable under sections 231b and 231c 11 See References in Text note below. of title 45, shall be exempt from reduction under any order issued under this subchapter.
**(b) Veterans programs** The following programs shall be exempt from reduction under any order issued under this subchapter: All programs administered by the Department of Veterans Affairs. Special benefits for certain World War II veterans (28–0401–0–1–701).
**(c) Net interest** No reduction of payments for net interest (all of major functional category 900) shall be made under any order issued under this subchapter.
**(d) Refundable income tax credits and certain elective payments**
(1) **Refundable income tax credits** — Payments to individuals made pursuant to provisions of title 26 establishing refundable tax credits shall be exempt from reduction under any order issued under this subchapter.
(2) **Certain elective payments** — Payments made to taxpayers pursuant to elections under subsection (d) of [section 48D of title 26](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section48D&num=0&edition=prelim), or amounts treated as payments which are made by taxpayers under paragraph (1) of such subsection, shall be exempt from reduction under any order issued under this subchapter.
**(e) Non-defense unobligated balances** Unobligated balances of budget authority carried over from prior fiscal years, except balances in the defense categor
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Requirements for qualification** A trust created or organized in the United States and forming part of a stock bonus, pension, or profit-sharing plan of an employer for the exclusive benefit of his employees or their beneficiaries shall constitute a qualified trust under this section—
(1) if contributions are made to the trust by such employer, or employees, or both, or by another employer who is entitled to deduct his contributions under section 404(a)(3)(B) (relating to deduction for contributions to profit-sharing and stock bonus plans), or by a charitable remainder trust pursuant to a qualified gratuitous transfer (as defined in section 664(g)(1)), for the purpose of distributing to such employees or their beneficiaries the corpus and income of the fund accumulated by the trust in accordance with such plan;
(2) if under the trust instrument it is impossible, at any time prior to the satisfaction of all liabilities with respect to employees and their beneficiaries under the trust, for any part of the corpus or income to be (within the taxable year or thereafter) used for, or diverted to, purposes other than for the exclusive benefit of his employees or their beneficiaries (but this paragraph shall not be construed, in the case of a multiemployer plan, to prohibit the return of a contribution within 6 months after the plan administrator determines that the contribution was made by a mistake of fact or law (other than a mistake relating to whether the plan is described in section 401(a) or the trust which is part of such plan is exempt from taxation under section 501(a), or the return of any withdrawal liability payment determined to be an overpayment within 6 months of such determination));
(3) if the plan of which such trust is a part satisfies the requireme
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Federal law — U.S. Code and appendices · legal_authorities
**(a) S corporation defined**
(1) **In general** — For purposes of this title, the term “S corporation” means, with respect to any taxable year, a small business corporation for which an election under section 1362(a) is in effect for such year.
(2) **C corporation** — For purposes of this title, the term “C corporation” means, with respect to any taxable year, a corporation which is not an S corporation for such year.
**(b) Small business corporation**
(1) **In general** — For purposes of this subchapter, the term “small business corporation” means a domestic corporation which is not an ineligible corporation and which does not—
(A) have more than 100 shareholders,
(B) have as a shareholder a person (other than an estate, a trust described in subsection (c)(2), or an organization described in subsection (c)(6)) who is not an individual,
(C) have a nonresident alien as a shareholder, and
(D) have more than 1 class of stock.
(2) **Ineligible corporation defined** — For purposes of paragraph (1), the term “ineligible corporation” means any corporation which is—
(A) a financial institution which uses the reserve method of accounting for bad debts described in section 585,
(B) an insurance company subject to tax under subchapter L, or
(C) a DISC or former DISC.
(3) **Treatment of certain wholly owned subsidiaries**
(A) *In general* — Except as provided in regulations prescribed by the Secretary, for purposes of this title—
(i) a corporation which is a qualified subchapter S subsidiary shall not be treated as a separate corporation, and
(ii) all assets, liabilities, and items of income, deduction, and credit of a qualified subchapter S subsidiary shall be treated as assets, liabilities, and such items (as the case may be) of the S corp
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Exclusion from gross income**
(1) **In general** — Gross income does not include any amount which (but for this subsection) would be includible in gross income by reason of the discharge (in whole or in part) of indebtedness of the taxpayer if—
(A) the discharge occurs in a title 11 case,
(B) the discharge occurs when the taxpayer is insolvent,
(C) the indebtedness discharged is qualified farm indebtedness,
(D) in the case of a taxpayer other than a C corporation, the indebtedness discharged is qualified real property business indebtedness, or
(E) the indebtedness discharged is qualified principal residence indebtedness which is discharged—
(i) before January 1, 2026, or
(ii) subject to an arrangement that is entered into and evidenced in writing before January 1, 2026.
(2) **Coordination of exclusions**
(A) *Title 11 exclusion takes precedence* — Subparagraphs (B), (C), (D), and (E) of paragraph (1) shall not apply to a discharge which occurs in a title 11 case.
(B) *Insolvency exclusion takes precedence over qualified farm exclusion and qualified real property business exclusion* — Subparagraphs (C) and (D) of paragraph (1) shall not apply to a discharge to the extent the taxpayer is insolvent.
(C) *Principal residence exclusion takes precedence over insolvency exclusion unless elected otherwise* — Paragraph (1)(B) shall not apply to a discharge to which paragraph (1)(E) applies unless the taxpayer elects to apply paragraph (1)(B) in lieu of paragraph (1)(E).
(3) **Insolvency exclusion limited to amount of insolvency** — In the case of a discharge to which paragraph (1)(B) applies, the amount excluded under paragraph (1)(B) shall not exceed the amount by which the taxpayer is insolvent.
**(b) Reduction of tax attributes**
(
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Affiliated group defined** For purposes of this subtitle—
(1) **In general** — The term “affiliated group” means—
(A) 1 or more chains of includible corporations connected through stock ownership with a common parent corporation which is an includible corporation, but only if—
(B)
(i) the common parent owns directly stock meeting the requirements of paragraph (2) in at least 1 of the other includible corporations, and
(ii) stock meeting the requirements of paragraph (2) in each of the includible corporations (except the common parent) is owned directly by 1 or more of the other includible corporations.
(2) **80-percent voting and value test** — The ownership of stock of any corporation meets the requirements of this paragraph if it—
(A) possesses at least 80 percent of the total voting power of the stock of such corporation, and
(B) has a value equal to at least 80 percent of the total value of the stock of such corporation.
(3) **5 years must elapse before reconsolidation**
(A) *In general* — If—
(i) a corporation is included (or required to be included) in a consolidated return filed by an affiliated group, and
(ii) such corporation ceases to be a member of such group,
with respect to periods after such cessation, such corporation (and any successor of such corporation) may not be included in any consolidated return filed by the affiliated group (or by another affiliated group with the same common parent or a successor of such common parent) before the 61st month beginning after its first taxable year in which it ceased to be a member of such affiliated group.
(B) *Secretary may waive application of subparagraph (A)* — The Secretary may waive the application of subparagraph (A) to any corporation for any period subjec
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Federal law — U.S. Code and appendices · legal_authorities
Page 2459
TITLE 26—INTERNAL REVENUE CODE
§ 1371
utable to any taxable year in which the corporation
was a C corporation’’ before period at end.
1984—Subsec. (c). Pub. L. 98–369, § 721(r)(2), inserted
‘‘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 sub-
section, the balance of such account shall be allocated
among such distributions in proportion to their respec-
tive sizes.’’
Subsec. (e)(1)(A). Pub. L. 98–369, § 721(r)(1), substituted
‘‘(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))’’ for ‘‘(except that
no adjustment shall be made for income which is ex-
empt from tax under this title and no adjustment shall
be made for any expense not deductible in computing
the corporation’s taxable income and not properly
chargeable to capital account)’’.
1983—Subsec. (e)(3). Pub. L. 97–448 added par. (3).
Statutory Notes and Related Subsidiaries
EFFECTIVE DATE OF 2007 AMENDMENT
Amendment by Pub. L. 110–28 applicable to taxable
years beginning after Dec. 31, 2006, with special rule for
treatment as second class of stock, see section 8232(c)
of Pub. L. 110–28, set out as a note under section 1361 of
this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104–188 applicable to taxable
years beginning after Dec. 31, 1996, see section 1317(a) of
Pub. L. 104–188, set out as a note under section 641 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99–514 applicable to taxable
years beginning after Dec. 31, 1982, see section
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