View all text of Part III [§ 1371 - § 1375]
§ 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
(c) Limitations
(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
(C) Adjustment to net unrealized built-in gain
(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), Dec. 18, 2015, 129 Stat. 3054; Pub. L. 115–97, title I, §§ 12002(c), 13001(b)(2)(N), Dec. 22, 2017, 131 Stat. 2095, 2097; Pub. L. 115–141, div. U, title IV, § 401(b)(33), Mar. 23, 2018, 132 Stat. 1204.)