SEC. 1347 (amended 1958)-Continued Applicability: Taxable years beginning after December 31, 1953, and ending after August 16, 1954. (Id., § 1(c)(1), 72 Stat. 1606. See n. 36, p. 79 above.) CH. 1, SUBCHAPTER R-ELECTION OF CERTAIN PARTNERSHIPS AND PROPRIETORSHIPS AS TO TAXABLE STATUS (68A Stat. 350–352): NOTE: The table of sections for Subchapter R of Chapter 1 reads as follows (68A Stat. 350): "Sec. 1361. Unincorporated business enterprises electing to be taxed as domestic corporations.' This table has not been amended. SEC. 1361. UNINCORPORATED BUSINESS ENTERPRISES ELECTING TO BE TAXED AS DOMESTIC CORPORATIONS (68A Stat. 350–352): (d) (i) (in full) Oct. 10, 1962, H.R. 10, P.L. 87-792, § 7(h), 76 Stat. 829: "(d) LIMITATION.-A partner or proprietor of an unincorporated "other than an employee within the meaning of section 401 (c) (1) (relating to self-employed individuals), or for purposes of section 405 (relating to qualified bond purchase plans) other than an employee described in section 405(f)”. Applicability: Taxable years beginning after December 31, 1962. Feb. 26, 1964, H.R. 8363, P.L. 88-272, § 225 (k) (5), 78 Stat. 94: "(i) PERSONAL HOLDING COMPANY INCOME. "(1) EXCLUDED FROM INCOME OF ENTERPRISE.-There shall be excluded from the gross income of the enterprise as to which an 213 Subsection (i) of section 1361 originally read as follows (68A Stat. 351): "(i) PERSONAL HOLDING COMPANY INCOME. "(1) EXCLUDED FROM INCOME OF ENTERPRISE.-There shall not be included in the gross income of the enterprise as to which an election has been made under subsection (a) any personal holding company income (as defined in section 543), except income earned by such enterprise from buying and selling real property, stock, securities, or commodities for the account of others. "(2) INCOME AND DEDUCTIONS OF OWNERS.-Any personal holding company income not included in the gross income of the enterprise under paragraph (1), and the expenses attributable thereto, shall be treated as the income and deductions of the proprietor or partners (in accordance with their distributive shares of partnership income) of such enterprise. (3) DISTRIBUTIONS.-If the amount of personal holding company income includible under paragraph (2) in the income of the proprietor or partner is distributed to him during the year earned, such amount shall not be taxed as a corporate distribution. The amount of such income not distributed during such year shall be considered as paid-in surplus or as a contribution to capital as of the close of such year. "(4) RENTS AND ROYALTIES.-For the purpose of determining whether rents, and mineral, oil, or gas royalties constitute personal holding company income under paragraph (1), all income earned by the enterprise in any taxable year shall enter into the determination of its gross income for such year.' SEC. 1361-Continued (i) (revised 1964)-Continued election has been made under subsection (a) any item of gross income (computed without regard to the adjustments provided in section 543(b) (3) or (4)) if, but for this paragraph, such item (adjusted, where applicable, as provided in section 543(b) (3) or (4)) would constitute personal holding company income (as defined in section 543(a)) of such enterprise. "(2) INCOME AND DEDUCTIONS OF OWNERS.-Items excluded from the gross income of the enterprise under paragraph (1), and the expenses attributable thereto, shall be treated as the income and deductions of the proprietor or partners (in accordance with their distributive shares of partnership income) of such enterprise. "(3) DISTRIBUTIONS. —If "(A) the amount excluded from gross income under paragraph (2) exceeds the expenses attributable thereto, and (B) any portion of such excess is distributed to the proprietor or partner during the year earned, such portion shall not be taxed as a corporate distribution. The portion of such excess not distributed during such year shall be considered as paid-in surplus or as a contribution to capital as of the close of such year." Applicability: Taxable years beginning after December 31, 1963. (Id., § 225(1)(1), 78 Stat. 94) ANCILLARY PROVISIONS: Sept. 2, 1958, H.R. 8381, P.L. 85-866, § 63, 72 Stat. 1649: "SEC. 63. REVOCATION OF ELECTION PERMITTING CERTAIN PROPRIETORSHIPS AND PARTNERSHIPS TO BE TAXED AS CORPORATIONS. "(a) REVOCATION OF ELECTION.-If "(1) a statement of an election to be taxed as a domestic corporation is heretofore or hereafter filed with respect to any unincorporated business enterprise under section 1361 of the Internal Revenue Code of 1954, and "(2) such filing is in accordance with regulations prescribed by the Secretary of the Treasury or his delegate, then such statement of election shall be treated as a valid election; but such election may be revoked (in accordance with regulations prescribed by the Secretary of the Treasury or his delegate) after the date of the enactment of this section [September 2, 1958] and on or before the last day of the third month following the month in which regulations prescribed under such section 1361 are published in the Federal Register 314 "(b) TOLLING OF STATUTE OF LIMITATIONS.-In the case of any election referred to in subsection (a) with respect to any unincorporated business enterprise "(1) The statutory period for the assessment of any deficiency against any taxpayer for any taxable year, to the extent such deficiency is attributable to such enterprise and to the period to which such election applies (or would apply but for a revocation under subsection (a)), shall not expire before the expiration date specified in subsection (c); and such deficiency may be assessed at any time on or 314 The regulations under section 1361 of the Internal Revenue Code of 1954, issued pursuant to section 63 of P.L. 85-866, were published in the Federal Register October 11, 1960 (25 F.R. 9723). They superseded paragraph 23 of T.D. 6118 (19 F.R. 9896), as amended by T.D. 6124 (20 F.R. 1204), and T.D. 6332, § 18.1-2, and were made applicable to taxable years beginning after December 31, 1953, and ending after August 16, 1954. See "ANCILLARY PROVISIONS" under Secs. 6501 and 6511, pp. 1090 and 1108 below. SEC. 1361-Continued ANCILLARY PROVISIONS (P.L. 85-866, § 63)-Continued before such expiration date, notwithstanding any law or rule of law which would otherwise prevent such assessment. "(2) If credit or refund of the amount of any overpayment is prevented, at any time on or before the expiration date specified in subsection (c), by the operation of any law or rule of law (other than chapter 74 of the Internal Revenue Code of 1954 [§§ 7121-7123], relating to closing agreements and compromises), credit or refund of such overpayment may, nevertheless, be allowed or made, to the extent such overpayment is attributable to such enterprise and to the period referred to in paragraph (1), if claim therefor is filed on or before the expiration date specified in subsection (c). "(c) EXPIRATION DATE DEFINED. For purposes of subsection (b), the term 'expiration date' means that day which is one year after whichever of the following days is the earlier: "(1) The last day of the third month following the month in which regulations prescribed under section 1361 of the Internal Revenue Code of 1954 are published in the Federal Register [October 11, 1960, 25 F.R. 9723]; or "(2) if the election is revoked under subsection (a), the day on which such revocation is filed with the Secretary of the Treasury or his delegate. "(d) EXCEPTION.-This section shall not apply to any statement of election filed with respect to any unincorporated business enterprise under section 1361 of the Internal Revenue Code of 1954, if, before the date of the enactment of this Act, such statement of election has been withdrawn with the permission of the Secretary of the Treasury or his delegate." CH. 1, SUBCHAPTER S-ELECTION OF CERTAIN SMALL BUSINESS CORPORATIONS AS TO TAXABLE STATUS (Added 195872 Stat. 1650–1656): Subchapter S. Sept. 2, 1958, H.R. 8381, P.L. 85-866, § 64(a), 72 Stat. 1650-1656: (added) Amended Chapter 1 (normal taxes and surtaxes) by inserting after Subchapter R (election of certain partnerships and proprietorships as to taxable status) a new Subchapter as follows: "Subchapter S-Election of Certain Small Business Corporations as to Taxable Status "Sec. 1371. Definitions. "Sec. 1372. Election by small business corporation. "Sec. 1373. Corporation undistributed taxable income taxed to share holders. "Sec. 1374. Corporation net operating loss allowed to shareholders. "Sec. 1376. Adjustment to basis of stock of, and indebtedness owing, shareholders. "Sec. 1377. Special rules applicable to earnings and profits of electing followed by the text of the new sections, 1371-1377, inclusive. Only taxable years beginning after December 31, 1957. The complete text of Subchapter S of Chapter 1, as enacted September 2, 1958, will be found in slip law 85-866, at pages 45-51. Amendments made since September 2, 1958, are set forth below. SEC. 1371. DEFINITIONS (Added 1958-72 Stat. 1650): (c)_ (d) ____. (added) Sept. 23, 1959, H.R. 47, P.L. 86-376, § 2(a), 73 Stat. 699: "(c) STOCK OWNED BY HUSBAND AND WIFE.-For purposes of subsection (a) (1) stock which "(1) is community property of a husband and wife (or the income from which is community income) under the applicable community property law of a State, or "(2) is held by a husband and wife as joint tenants, tenants by the entirety, or tenants in common, shall be treated as owned by one shareholder." Applicability: Taxable years beginning after December 31, 1959.315 See "ANCILLARY PROVISIONS" under Secs. 6213 and 6511 below. "(d) OWNERSHIP OF CERTAIN STOCK. For purposes of subsection (a), a corporation shall not be considered a member of an affiliated 315 Subsection (d) of section 2 of P.L. 86-376 provided as follows: "(d) The amendment made by subsection (a) [this amendment] shall apply to taxable years beginning after December 31, 1959. The amendments made by subsections (b) and (c) [amending, respectively, Sec. 1374(b) and Sec. 1504(b)] shall take effect on the day after the date of the enactment of this Act." The provision with respect to the applicability of the new subsection (c) was changed by P.L. 87-834, § 23, 76 Stat. 1065–1066, as follows: "SEC. 23. EFFECTIVE DATE OF SECTION 1371(c) OF THE INTERNAL REVENUE CODE OF 1954. "(a) IN GENERAL.-Subject to the provisions of subsection (b), section 1371(c) of the Internal Revenue Code of 1954 (as added by section 2(a) of the Act entitled "An Act to amend the Internal Revenue Code of 1954 to provide a personal exemption for children placed for adoption and to clarify certain provisions relating to the election of small business corporations as to taxable status", approved September 23, 1959 (Public Law 86-376)), shall (notwithstanding the provisions of the first sentence of section 2(d) of such Act) also apply to taxable years beginning after December 31, 1957, and before January 1, 1960. "(b) ELECTION AND CONSENT BY CORPORATIONS; CONSENTS BY SHAREHOLDERS.-Subsection (a) shall apply with respect to any corporation and its shareholders only if, within one year after the date of the enactment of this Act "(1) such corporation (in such manner as the Secretary of the Treasury or his delegate prescribes by regulations) elects to have the provisions of subsection (a) apply and consents to the application of subsection (c); and "(2) each person who is a shareholder of such corporation on the date on which such corporation makes such election, and each person who was a shareholder of such corporation during any taxable year of such corporation beginning after December 31, 1957, and ending before the date of such election, consents (in such manner and at such time as the Secretary of the Treasury or his delegate prescribes by regulations) to such election and to the application of subsection (c). "(c) TOLLING OF STATUTES OF LIMITATIONS.-In any case in which a corporation makes an election under subsection (b)— "(1) if the assessment of any deficiency against the corporation making such election, or any shareholder of such corporation who consents to such election, for any taxable year is prevented, at any time on or before the expiration of one year after the date of such election, by the operation of any law or rule of law, assessment of such deficiency may, nevertheless, be made, to the extent such deficiency is attributable to the application of subsection (a), at any time on or before the expiration of such one-year period; and (2) if credit or refund of any overpayment of tax by the corporation making such election, or any shareholder of such corporation who consents to such election, for any taxable year is prevented, at any time on or before the expiration of one year after the date of such election, by the operation of any law or rule of law, credit or refund of such overpayment may, nevertheless, be allowed or made, to the extent such overpayment is attributable to the application of subsection (a), if claim therefor is filed on or before the expiration of such one-year period.” SEC. 1371 (added 1958)-Continued (d) (revised 1964)—Continued group at any time during any taxable year by reason of the ownership of stock in another corporation if such other corporation (1) has not begun business at any time on or after the date of its incorporation and before the close of such taxable year, and "(2) does not have taxable income for the period included within such taxable year." Applicability: Taxable years of corporations beginning after December 31, 1962. (Id., § 233(c), 78 Stat. 113.) SEC. 1372. ELECTION BY SMALL BUSINESS CORPORATION (Added 1958-72 Stat. 1650–1652): (g). (added) May 4, 1961, H.R. 5189, P.L. 87-29, § 2, 75 Stat. 64: Amended Sec. 1372 (as added by P.L. 85-866, § 64(a)) by adding at the end thereof, after subsection (f) (election after termination), the following new subsection (g): "(g) CONSENT TO ELECTION BY CERTAIN SHAREHOLDERS OF STOCK HELD AS COMMUNITY PROPERTY.-If a husband and wife owned stock which was community property (or the income from which was community income) under the applicable community property law of a State, and if either spouse filed a timely consent to an election under subsection (a) for a taxable year beginning before January 1, 1961, the time for filing the consent of the other spouse to such election shall not expire prior to May 15, 1961." Applicability: Indicated by the terms of the amendment. SEC. 1374. CORPORATION NET OPERATING LOSS ALLOWED TO SHAREHOLDERS (Added 1958-72 Stat. 1653–1654): Sept. 23, 1959, H.R. 47, P.L. 86-376, § 2(b), 73 Stat. 699: (b)... (paren❜l clause added) Amended Sec. 1374(b) (as added by P.L. 85–866, § 64(a)), which read as follows (72 Stat. 1653): "(b) ALLOWANCE OF DEDUCTION.-Each person who is a shareholder of an electing small business corporation at any time during a taxable year of the corporation in which it has a net operating loss shall be allowed as a deduction from gross income, for his taxable year in which or with which the taxable year of the corporation ends, an amount equal to his portion of the corporation's net operating loss (as determined under subsection (c)).", by inserting after "the taxable year of the corporation ends" the following: "(or for the final taxable year of a shareholder who dies before the end of the corporation's taxable year)". Effective Date: September 24, 1959-the day after the date of enactment.316 (Id., § 2(d), 73 Stat. 699. See n. 315, p. 502 above.) 318 P.L. 87-834, § 30 (Oct. 16, 1962), 76 Stat. 1069, provided as follows: "SEC. 30. EFFECTIVE DATE OF AMENDMENT TO SECTION 1374(b). "The amendment made by section 2(b) of Public Law 86-376 (73 Stat. 699) shall take effect on September 2, 1958." |