§1377. Definitions and special rule

(a) Pro rata share

For purposes of this subchapter-

(1) In general

Except as provided in paragraph (2), each shareholder's pro rata share of any item for any taxable year shall be the sum of the amounts determined with respect to the shareholder-

(A) by assigning an equal portion of such item to each day of the taxable year, and

(B) then by dividing that portion pro rata among the shares outstanding on such day.

(2) Election to terminate year

Under regulations prescribed by the Secretary, if any shareholder terminates his interest in the corporation during the taxable year and all persons who are shareholders during the taxable year agree to the application of this paragraph, paragraph (1) shall be applied as if the taxable year consisted of 2 taxable years the first of which ends on the date of the termination.

(b) Post-termination transition period

(1) In general

For purposes of this subchapter, the term "post-termination transition period" means-

(A) the period beginning on the day after the last day of the corporation's last taxable year as an S corporation and ending on the later of-

(i) the day which is 1 year after such last day, or

(ii) the due date for filing the return for such last year as an S corporation (including extensions), and

(B) the 120-day period beginning on the date of a determination that the corporation's election under section 1362(a) had terminated for a previous taxable year.

(2) Determination defined

For purposes of paragraph (1), the term "determination" means-

(A) a court decision which becomes final,

(B) a closing agreement, or

(C) an agreement between the corporation and the Secretary that the corporation failed to qualify as an S corporation.

(c) Manner of making elections, etc.

Any election under this subchapter, and any revocation under section 1362(d)(1), shall be made in such manner as the Secretary shall by regulations prescribe.

(Added Pub. L. 97–354, §2, Oct. 19, 1982, 96 Stat. 1685 .)

Prior Provisions

A prior section 1377, added Pub. L. 85–866, title I, §64(a), Sept. 2, 1958, 72 Stat. 1656 ; amended Pub. L. 94–455, title IX, §902(b)(1), title XIX, §1901(b)(32)(B)(iv), Oct. 4, 1976, 90 Stat. 1608 , 1800, related to special rules applicable to earnings and profits of electing small business corporations, prior to the general revision of this subchapter by section 2 of Pub. L. 97–354.

Effective Date

Section applicable to taxable years beginning after Dec. 31, 1982, see section 6(a) of Pub. L. 97–354, set out as a note under section 1361 of this title.

Section Referred to in Other Sections

This section is referred to in section 1371 of this title.