26 USC 1366 - Pass-thru of items to shareholders

U.S Code last checked for updates: Nov 22, 2024

§ 1366.

Pass-thru of items to shareholders

(a)

Determination of shareholder’s tax liability

(1)

In general

In determining the tax under this chapter of a shareholder for the shareholder’s taxable year in which the taxable year of the S corporation ends (or for the final taxable year of a shareholder who dies, or of a trust or estate which terminates, before the end of the corporation’s taxable year), there shall be taken into account the shareholder’s pro rata share of the corporation’s—

(A)

items of income (including tax-exempt income), loss, deduction, or credit the separate treatment of which could affect the liability for tax of any shareholder, and

(B)

nonseparately computed income or loss.

For purposes of the preceding sentence, the items referred to in subparagraph (A) shall include amounts described in paragraph (4) or (6) of section 702(a).

(2)

Nonseparately computed income or loss defined

(b)

Character passed thru

(c)

Gross income of a shareholder

(d)

Special rules for losses and deductions

(1)

Cannot exceed shareholder’s basis in stock and debt

The aggregate amount of losses and deductions taken into account by a shareholder under subsection (a) for any taxable year shall not exceed the sum of—

(A)

the adjusted basis of the shareholder’s stock in the S corporation (determined with regard to paragraphs (1) and (2)(A) of section 1367(a) for the taxable year), and

(B)

the shareholder’s adjusted basis of any indebtedness of the S corporation to the shareholder (determined without regard to any adjustment under paragraph (2) of section 1367(b) for the taxable year).

(2)

Indefinite carryover of disallowed losses and deductions

(A)

In general

(B)

Transfers of stock between spouses or incident to divorce

(3)

Carryover of disallowed losses and deductions to post-termination transition period

(A)

In general

(B)

Cannot exceed shareholder’s basis in stock

(C)

Adjustment in basis of stock

(D)

At-risk limitations

(4)

Application of limitation on charitable contributions

In the case of any charitable contribution of property to which the second sentence of section 1367(a)(2) applies, paragraph (1) shall not apply to the extent of the excess (if any) of—

(A)

the shareholder’s pro rata share of such contribution, over

(B)

the shareholder’s pro rata share of the adjusted basis of such property.

(e)

Treatment of family group

(f)

Special rules

(1)

Subsection (a) not to apply to credit allowable under section 34

(2)

Treatment of tax imposed on built-in gains

(3)

Reduction in pass-thru for tax imposed on excess net passive income

If any tax is imposed under section 1375 for any taxable year on an S corporation, for purposes of subsection (a), each item of passive investment income shall be reduced by an amount which bears the same ratio to the amount of such tax as—

(A)

the amount of such item, bears to

(B)

the total passive investment income for the taxable year.

(Added Pub. L. 97–354, § 2, Oct. 19, 1982, 96 Stat. 1677; amended Pub. L. 98–369, div. A, title IV, § 474(r)(26), title VII, § 735(c)(16), July 18, 1984, 98 Stat. 844, 985; Pub. L. 99–514, title VI, § 632(c)(2), title VII, § 701(e)(4)(K), Oct. 22, 1986, 100 Stat. 2277, 2343; Pub. L. 100–647, title I, § 1006(f)(5)(E), Nov. 10, 1988, 102 Stat. 3406; Pub. L. 101–239, title VII, § 7811(c)(7), Dec. 19, 1989, 103 Stat. 2407; Pub. L. 104–188, title I, §§ 1302(e), 1307(c)(3)(A), 1309(a)(1), 1312, Aug. 20, 1996, 110 Stat. 1779, 1782, 1783, 1784; Pub. L. 108–357, title II, § 235(a), Oct. 22, 2004, 118 Stat. 1435; Pub. L. 110–172, § 3(b), Dec. 29, 2007, 121 Stat. 2474; Pub. L. 115–141, div. U, title IV, § 401(a)(192), Mar. 23, 2018, 132 Stat. 1193.)

cite as: 26 USC 1366