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26 U.S.C. § 1375 — Tax imposed when passive investment income of corporation having accumulated earnings and profits exceeds 25 percent of gross receipts
Federal law — U.S. Code and appendices · legal_authorities
**(a) General rule** If for the taxable year an S corporation has—
(1) accumulated earnings and profits at the close of such taxable year, and
(2) gross receipts more than 25 percent of which are passive investment income,
then there is hereby imposed a tax on the income of such corporation for such taxable year. Such tax shall be computed by multiplying the excess net passive income by the highest rate of tax specified in section 11(b).
**(b) Definitions** For purposes of this section—
(1) **Excess net passive income**
(A) *In general* — Except as provided in subparagraph (B), the term “excess net passive income” means an amount which bears the same ratio to the net passive income for the taxable year as—
(i) the amount by which the passive investment income for the taxable year exceeds 25 percent of the gross receipts for the taxable year, bears to
(ii) the passive investment income for the taxable year.
(B) *Limitation* — The amount of the excess net passive income for any taxable year shall not exceed the amount of the corporation’s taxable income for such taxable year as determined under section 63(a)—
(i) without regard to the deductions allowed by part VIII of subchapter B (other than the deduction allowed by section 248, relating to organization expenditures), and
(ii) without regard to the deduction under section 172.
(2) **Net passive income** — The term “net passive income” means—
(A) passive investment income, reduced by
(B) the deductions allowable under this chapter which are directly connected with the production of such income (other than deductions allowable under section 172 and part VIII of subchapter B).
(3) **Passive investment income, etc.** — The terms “passive investment income” and “gross receipts” have the
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Source file: Laws/federal/codes/united-states-code/title-26/section-1375-tax-imposed-when-passive-investment-income-of-corporation-having-accumul--a060c4d919.md
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Source location: Title 26, Chapter 1, § 1375; chapter-001-normal-taxes-and-surtaxes.md
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**(a) General rule** If for the taxable year an S corporation has—
(1) accumulated earnings and profits at the close of such taxable year, and
(2) gross receipts more than 25 percent of which are passive investment income,
then there is hereby imposed a tax on the income of such corporation for such taxable year. Such tax shall be computed by multiplying the excess net passive income by the highest rate of tax specified in section 11(b).
**(b) Definitions** For purposes of this section—
(1) **Excess net passive income**
(A) *In general* — Except as provided in subparagraph (B), the term “excess net passive income” means an amount which bears the same ratio to the net passive income for the taxable year as—
(i) the amount by which the passive investment income for the taxable year exceeds 25 percent of the gross receipts for the taxable year, bears to
(ii) the passive investment income for the taxable year.
(B) *Limitation* — The amount of the excess net passive income for any taxable year shall not exceed the amount of the corporation’s taxable income for such taxable year as determined under section 63(a)—
(i) without regard to the deductions allowed by part VIII of subchapter B (other than the deduction allowed by section 248, relating to organization expenditures), and
(ii) without regard to the deduction under section 172.
(2) **Net passive income** — The term “net passive income” means—
(A) passive investment income, reduced by
(B) the deductions allowable under this chapter which are directly connected with the production of such income (other than deductions allowable under section 172 and part VIII of subchapter B).
(3) **Passive investment income, etc.** — The terms “passive investment income” and “gross receipts” have the same respective meanings as when used in paragraph (3) of section 1362(d).
(4) **Coordination with section 1374** — Notwithstanding paragraph (3), the amount of passive investment income shall be determined by not taking into account any recognized built-in gain or loss of the S corporation for any taxable year in the recognition period. Terms used in the preceding sentence shall have the same respective meanings as when used in section 1374.
**(c) Credits not allowable** No credit shall be allowed under part IV of subchapter A of this chapter (other than section 34) against the tax imposed by subsection (a).
**(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 accumulated 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 accumulated 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.
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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
Source: Supplied U.S. Code snapshot — release unconfirmed · 26 U.S.C. § 641
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Married individuals filing joint returns and surviving spouses** There is hereby imposed on the taxable income of—
(1) every married individual (as defined in section 7703) who makes a single return jointly with his spouse under section 6013, and
(2) every surviving spouse (as defined in section 2(a)),
a tax determined in accordance with the following table: If taxable income is:The tax is: Not over $36,90015% of taxable income. Over $36,900 but not over $89,150$5,535, plus 28% of the excess over $36,900. Over $89,150 but not over $140,000$20,165, plus 31% of the excess over $89,150. Over $140,000 but not over $250,000$35,928.50, plus 36% of the excess over $140,000. Over $250,000$75,528.50, plus 39.6% of the excess over $250,000.
**(b) Heads of households** There is hereby imposed on the taxable income of every head of a household (as defined in section 2(b)) a tax determined in accordance with the following table: If taxable income is:The tax is: Not over $29,60015% of taxable income. Over $29,600 but not over $76,400$4,440, plus 28% of the excess over $29,600. Over $76,400 but not over $127,500$17,544, plus 31% of the excess over $76,400. Over $127,500 but not over $250,000$33,385, plus 36% of the excess over $127,500. Over $250,000$77,485, plus 39.6% of the excess over $250,000.
**(c) Unmarried individuals (other than surviving spouses and heads of households)** There is hereby imposed on the taxable income of every individual (other than a surviving spouse as defined in section 2(a) or the head of a household as defined in section 2(b)) who is not a married individual (as defined in section 7703) a tax determined in accordance with the following table: If taxable income is:The tax is: Not over $22,10015% of taxable income. Over $22,100 but not over $53,50
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Allowance of credit**
(1) **In general** — In the case of an individual for which there are 1 or more qualifying individuals (as defined in subsection (b)(1)) with respect to such individual, there shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the applicable percentage of the employment-related expenses (as defined in subsection (b)(2)) paid by such individual during the taxable year.
(2) **Applicable percentage defined** — For purposes of paragraph (1), the term “applicable percentage” means 50 percent—
(A) reduced (but not below 35 percent) by 1 percentage point for each $2,000 or fraction thereof by which the taxpayer’s adjusted gross income for the taxable year exceeds $15,000, and
(B) further reduced (but not below 20 percent) by 1 percentage point for each $2,000 ($4,000 in the case of a joint return) or fraction thereof by which the taxpayer’s adjusted gross income for the taxable year exceeds $75,000 ($150,000 in the case of a joint return).
**(b) Definitions of qualifying individual and employment-related expenses** For purposes of this section—
(1) **Qualifying individual** — The term “qualifying individual” means—
(A) a dependent of the taxpayer (as defined in section 152(a)(1)) who has not attained age 13,
(B) a dependent of the taxpayer (as defined in section 152, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B)) who is physically or mentally incapable of caring for himself or herself and who has the same principal place of abode as the taxpayer for more than one-half of such taxable year, or
(C) the spouse of the taxpayer, if the spouse is physically or mentally incapable of caring for himself or herself and who has the same principal place of abod
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Federal law — U.S. Code and appendices · legal_authorities
**(a) General rule** Except as otherwise provided in this section or section 337, gain or loss shall be recognized to a liquidating corporation on the distribution of property in complete liquidation as if such property were sold to the distributee at its fair market value.
**(b) Treatment of liabilities** If any property distributed in the liquidation is subject to a liability or the shareholder assumes a liability of the liquidating corporation in connection with the distribution, for purposes of subsection (a) and section 337, the fair market value of such property shall be treated as not less than the amount of such liability.
**(c) Exception for liquidations which are part of a reorganization** For provision providing that this subpart does not apply to distributions in pursuance of a plan of reorganization, see section 361(c)(4).
**(d) Limitations on recognition of loss**
(1) **No loss recognized in certain distributions to related persons**
(A) *In general* — No loss shall be recognized to a liquidating corporation on the distribution of any property to a related person (within the meaning of section 267) if—
(i) such distribution is not pro rata, or
(ii) such property is disqualified property.
(B) *Disqualified property* — For purposes of subparagraph (A), the term “disqualified property” means any property which is acquired by the liquidating corporation in a transaction to which section 351 applied, or as a contribution to capital, during the 5-year period ending on the date of the distribution. Such term includes any property if the adjusted basis of such property is determined (in whole or in part) by reference to the adjusted basis of property described in the preceding sentence.
(2) **Special rule for certain property acquired in cert
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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
Page 2465
TITLE 26—INTERNAL REVENUE CODE
§ 1375
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105–34 effective as if included
in the provisions of the Small Business Job Protection
Act of 1996, Pub. L. 104–188, to which it relates, see sec-
tion 1601(j) of Pub. L. 105–34, set out as a note under
section 23 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101–239 effective, except as
otherwise provided, as if included in the provision of
the Technical and Miscellaneous Revenue Act of 1988,
Pub. L. 100–647, to which such amendment relates, see
section 7817 of Pub. L. 101–239, set out as a note under
section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100–647 effective, except as
otherwise provided, as if included in the provision of
the Tax Reform Act of 1986, Pub. L. 99–514, to which
such amendment relates, see section 1019(a) of Pub. L.
100–647, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99–514 applicable to taxable
years beginning after Dec. 31, 1986, but only in cases
where the return for the taxable year is filed pursuant
to an S election made after Dec. 31, 1986, and with pro-
vision that, in the case of any taxable year of an S cor-
poration which begins after Dec. 31, 1986, and to which
the amendments by section 632 (other than subsec. (b)
thereof) of Pub. L. 99–514 do not apply, subsec. (b)(1) of
this section (as in effect on the date before Oct. 22, 1986)
shall apply as if it read as follows: ‘‘an amount equal
to 34 percent of the amount by which the net capital
gain of the corporation for the taxable year exceeds
$25,000, or’’, and with other exceptions and special and
transitional rules, see section 633 of Pub. L. 99–
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