26 USC 1373 - Foreign income

Collapse to view only § 1373. Foreign income

§ 1371. Coordination with subchapter C
§ 1372. Partnership rules to apply for fringe benefit purposes
§ 1373. Foreign income
§ 1374. Tax imposed on certain built-in gains
§ 1375. Tax imposed when passive investment income of corporation having accumulated earnings and profits exceeds 25 percent of gross receipts

§ 1371. Coordination with subchapter C

(a) Application of subchapter C rules

(b) No carryover between C year and S year

(1) From C year to S year

(2) No carryover from S year

(3) Treatment of S year as elapsed year

(1) In general

(2) Adjustments for redemptions, liquidations, reorganizations, divisives, etc.

(3) Adjustments in case of distributions treated as dividends under section 1368(c)(2)

(d) Coordination with investment credit recapture

(1) No recapture by reason of election

(2) Corporation continues to be liable

(3) Adjustment to earnings and profits for amount of recapture

(e) Cash distributions during post-termination transition period

(1) In general

(2) Election to distribute earnings first

(f) Cash distributions following post-termination transition period

(Added Pub. L. 97–354, § 2, Oct. 19, 1982, 96 Stat. 1681; amended Pub. L. 98–369, div. A, title VII, § 721(e), (o), (x)(3), July 18, 1984, 98 Stat. 967, 970, 971; Pub. L. 99–514, title XVIII, § 1899A(33), (34), Oct. 22, 1986, 100 Stat. 2960; Pub. L. 101–508, title XI, § 11813(b)(23), Nov. 5, 1990, 104 Stat. 1388–555; Pub. L. 104–188, title I, § 1310, Aug. 20, 1996, 110 Stat. 1784; Pub. L. 115–97, title I, § 13543(b), Dec. 22, 2017, 131 Stat. 2155; Pub. L. 117–167, div. A, § 107(b)(3)(C), Aug. 9, 2022, 136 Stat. 1398.)

§ 1372. Partnership rules to apply for fringe benefit purposes

(a) General rule

For purposes of applying the provisions of this subtitle which relate to employee fringe benefits—

(1) the S corporation shall be treated as a partnership, and

(2) any 2-percent shareholder of the S corporation shall be treated as a partner of such partnership.

(b) 2-percent shareholder defined

(Added Pub. L. 97–354, § 2, Oct. 19, 1982, 96 Stat. 1682.)

§ 1373. Foreign income

(a) S corporation treated as partnership, etc.

For purposes of subparts A and F of part III, and part V, of subchapter N (relating to income from sources without the United States)—

(1) an S corporation shall be treated as a partnership, and

(2) the shareholders of such corporation shall be treated as partners of such partnership.

(b) Recapture of overall foreign loss

(Added Pub. L. 97–354, § 2, Oct. 19, 1982, 96 Stat. 1682.)

§ 1374. Tax imposed on certain built-in gains

(a) General rule

(b) Amount of tax

(1) In general

(2) Net operating loss carryforwards from C years allowed

(3) Credits

(A) In general

(B) Business credit carryforwards from C years allowed

(1) Corporations which were always S corporations

(2) Limitation on amount of net recognized built-in gainThe amount of the net recognized built-in gain taken into account under this section for any taxable year shall not exceed the excess (if any) of—

(A) the net unrealized built-in gain, over

(B) the net recognized built-in gain for prior taxable years beginning in the recognition period.

(d) Definitions and special rulesFor purposes of this section—

(1) Net unrealized built-in gainThe term “net unrealized built-in gain” means the amount (if any) by which—

(A) the fair market value of the assets of the S corporation as of the beginning of its 1st taxable year for which an election under section 1362(a) is in effect, exceeds

(B) the aggregate adjusted bases of such assets at such time.

(2) Net recognized built-in gain

(A) In generalThe term “net recognized built-in gain” means, with respect to any taxable year in the recognition period, the lesser of—

(i) the amount which would be the taxable income of the S corporation for such taxable year if only recognized built-in gains and recognized built-in losses were taken into account, or

(ii) such corporation’s taxable income for such taxable year (determined as provided in section 1375(b)(1)(B)).

(B) Carryover

(3) Recognized built-in gainThe term “recognized built-in gain” means any gain recognized during the recognition period on the disposition of any asset except to the extent that the S corporation establishes that—

(A) such asset was not held by the S corporation as of the beginning of the 1st taxable year for which it was an S corporation, or

(B) such gain exceeds the excess (if any) of—

(i) the fair market value of such asset as of the beginning of such 1st taxable year, over

(ii) the adjusted basis of the asset as of such time.

(4) Recognized built-in lossesThe term “recognized built-in loss” means any loss recognized during the recognition period on the disposition of any asset to the extent that the S corporation establishes that—

(A) such asset was held by the S corporation as of the beginning of the 1st taxable year referred to in paragraph (3), and

(B) such loss does not exceed the excess of—

(i) the adjusted basis of such asset as of the beginning of such 1st taxable year, over

(ii) the fair market value of such asset as of such time.

(5) Treatment of certain built-in items

(A) Income items

(B) Deduction items

(6) Treatment of certain propertyIf the adjusted basis of any asset is determined (in whole or in part) by reference to the adjusted basis of any other asset held by the S corporation as of the beginning of the 1st taxable year referred to in paragraph (3)—

(A) such asset shall be treated as held by the S corporation as of the beginning of such 1st taxable year, and

(B) any determination under paragraph (3)(B) or (4)(B) with respect to such asset shall be made by reference to the fair market value and adjusted basis of such other asset as of the beginning of such 1st taxable year.

(7) Recognition period

(A) In general

(B) Installment sales

(8) Treatment of transfer of assets from C corporation to S corporation

(A) In generalExcept to the extent provided in regulations, if—

(i) an S corporation acquires any asset, and

(ii) the S corporation’s basis in such asset is determined (in whole or in part) by reference to the basis of such asset (or any other property) in the hands of a C corporation,

then a tax is hereby imposed on any net recognized built-in gain attributable to any such assets for any taxable year beginning in the recognition period. The amount of such tax shall be determined under the rules of this section as modified by subparagraph (B).

(B) ModificationsFor purposes of this paragraph, the modifications of this subparagraph are as follows:

(i) In general

(ii) Subsection (c)(1) not to apply

(9) Reference to 1st taxable year

(e) Regulations

(Added Pub. L. 97–354, § 2, Oct. 19, 1982, 96 Stat. 1683; amended Pub. L. 97–448, title III, § 305(d)(3), Jan. 12, 1983, 96 Stat. 2400; Pub. L. 98–369, div. A, title I, § 102(d)(1), title IV, § 474(r)(27), title VII, § 721(u), July 18, 1984, 98 Stat. 623, 844, 971; Pub. L. 99–514, title VI, § 632(a), Oct. 22, 1986, 100 Stat. 2275; Pub. L. 100–647, title I, § 1006(f)(1)–(5)(A), Nov. 10, 1988, 102 Stat. 3403, 3404; Pub. L. 101–239, title VII, § 7811(c)(4), (5)(B), (8), Dec. 19, 1989, 103 Stat. 2407, 2408; Pub. L. 105–34, title XVI, § 1601(f)(5)(B), Aug. 5, 1997, 111 Stat. 1091; Pub. L. 111–5, div. B, title I, § 1251(a), Feb. 17, 2009, 123 Stat. 342; Pub. L. 111–240, title II, § 2014(a), Sept. 27, 2010, 124 Stat. 2556; Pub. L. 112–240, title III, § 326(a), (b), Jan. 2, 2013, 126 Stat. 2334; Pub. L. 113–295, div. A, title I, § 138(a), Dec. 19, 2014, 128 Stat. 4020; Pub. L. 114–113, div. Q, title I, § 127(a),

§ 1375. Tax imposed when passive investment income of corporation having accumulated earnings and profits exceeds 25 percent of gross receipts

(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.

(4) Coordination with section 1374

(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.

(Added Pub. L. 97–354, § 2, Oct. 19, 1982, 96 Stat. 1684; amended Pub. L. 98–369, div. A, title IV, § 474(r)(28), title VII, § 721(v), July 18, 1984, 98 Stat. 844, 971; Pub. L. 99–514, title VI, § 632(c)(3), Oct. 22, 1986, 100 Stat. 2277; Pub. L. 100–647, title I, § 1006(f)(5)(B)–(D), Nov. 10, 1988, 102 Stat. 3406; Pub. L. 104–188, title I, § 1311(b)(2)(A)–(C), Aug. 20, 1996, 110 Stat. 1784; Pub. L. 109–135, title IV, § 412(qq), Dec. 21, 2005, 119 Stat. 2640.)