A prior section 1378, added Pub. L. 89–389, § 2(a), Apr. 14, 1966, 80 Stat. 113; amended Pub. L. 91–172, title V, § 511(c)(4), Dec. 30, 1969, 83 Stat. 638; Pub. L. 94–455, title XIX, § 1901(a)(152), (b)(33)(R), Oct. 4, 1976, 90 Stat. 1789, 1802, related to tax imposed on certain capital gains, prior to the general revision of this subchapter by section 2 of Pub. L. 97–354.
1986—Subsec. (a). Pub. L. 99–514, § 806(b)(1), amended subsec. (a) generally. Prior to amendment, subsec. (a) read as follows: “For purposes of this subtitle—
“(1) an S corporation shall not change its taxable year to any accounting period other than a permitted year, and
“(2) no corporation may make an election under section 1362(a) for any taxable year unless such taxable year is a permitted year.”
Subsec. (b). Pub. L. 99–514, § 806(b)(2), inserted at end “For purposes of paragraph (2), any deferral of income to shareholders shall not be treated as a business purpose.”
Subsec. (c). Pub. L. 99–514, § 806(b)(3), struck out subsec. (c) which required existing S corporations to use permitted year after 50-percent shift in ownership.
1984—Subsec. (c)(1). Pub. L. 98–369, § 721(m), substituted “which includes December 31, 1982 (or which is an S corporation for a taxable year beginning during 1983 by reason of an election made on or before October 19, 1982)” for “which includes December 31, 1982”.
Subsec. (c)(3)(B)(i). Pub. L. 98–369, § 721(q), substituted “who (or whose estate) held” for “who held”.
Effective Date of 1986 Amendment
Pub. L. 99–514, title VIII, § 806(e), Oct. 22, 1986, 100 Stat. 2364, as amended by Pub. L. 100–647, title I, § 1008(e)(7), (8), (10), Nov. 10, 1988, 102 Stat. 3441, provided that:
The amendments made by this section [amending this section and sections 267
, and 706
of this title] shall apply to taxable years beginning after December 31, 1986
“(2)Change in accounting period.—In the case of any partnership, S corporation, or personal service corporation required by the amendments made by this section to change its accounting period for the taxpayer’s first taxable year beginning after December 31, 1986—
such change shall be treated as having been made with the consent of the Secretary
with respect to any partner
of an S corporation
which is required to include the items from more than 1 taxable year of the partnership or S corporation
in any 1 taxable year, income in excess of expenses of such partnership or corporation for the short taxable year required by such amendments shall be taken into account ratably in each of the first 4 taxable years beginning after December 31, 1986
, unless such partner or shareholder elects to include all such income in the the [sic] partner’s or shareholder’s taxable year with or within which the partnership’s or S corporation’s short taxable year ends.
“(3) Basis, etc. rules—
The adjusted basis
of any partner’s interest in a partnership or shareholder’s stock
in an S corporation shall be determined as if all of the income to be taken into account ratably in the 4 taxable years referred to in paragraph (2)(C) were included in gross income for the 1st of such taxable years.
“(B)Treatment of dispositions.—
If any interest
in a partnership
in an S corporation is disposed of before the last taxable year in the spread period, all amounts which would be included in the gross income of the partner or shareholder for subsequent taxable years in the spread period under paragraph (2)(C) and attributable to the interest or stock
disposed of shall be included in gross income for the taxable year in which the disposition occurs. For purposes of the preceding sentence, the term ‘spread period’ means the period consisting of the 4 taxable years referred to in paragraph (2)(C).”
Construction of Section 806 of Pub. L. 99–514
Pub. L. 100–647, title I, § 1008(e)(9), Nov. 10, 1988, 102 Stat. 3441, provided that:
“Nothing in section 806 of the Reform Act [Pub. L. 99–514
, amending this section and sections 267
, and 706
of this title and enacting provisions set out above] or in any legislative history relating thereto shall be construed as requiring the Secretary of the Treasury or his delegate to permit an automatic change of a taxable year.”