S corporation defined

For purposes of this title, the term “S corporation” means, with respect to any taxable year, a small business corporation for which an election under section 1362(a) is in effect for such year. For purposes of this title, the term “C corporation” means, with respect to any taxable year, a corporation which is not an S corporation for such year. For purposes of this subchapter, the term “small business corporation” means a domestic corporation which is not an ineligible corporation and which does not— For purposes of paragraph (1), the term “ineligible corporation” means any corporation which is— Except as provided in regulations prescribed by the Secretary, for purposes of this title— For purposes of this paragraph, the term “qualified subchapter S subsidiary” means any domestic corporation which is not an ineligible corporation (as defined in paragraph (2)), if— For purposes of this title, if any corporation which was a qualified subchapter S subsidiary ceases to meet the requirements of subparagraph (B), such corporation shall be treated as a new corporation acquiring all of its assets (and assuming all of its liabilities) immediately before such cessation from the S corporation in exchange for its stock. If the failure to meet the requirements of subparagraph (B) is by reason of the sale of stock of a corporation which is a qualified subchapter S subsidiary, the sale of such stock shall be treated as if— If a corporation’s status as a qualified subchapter S subsidiary terminates, such corporation (and any successor corporation) shall not be eligible to make— Except to the extent provided by the Secretary, this paragraph shall not apply to part III of subchapter A of chapter 61 (relating to information returns). For purposes of subsection (b)(1)(A), there shall be treated as one shareholder— For purposes of this paragraph— The term “members of a family” means a common ancestor, any lineal descendant of such common ancestor, and any spouse or former spouse of such common ancestor or any such lineal descendant. An individual shall not be considered to be a common ancestor if, on the applicable date, the individual is more than 6 generations removed from the youngest generation of shareholders who would (but for this subparagraph) be members of the family. For purposes of the preceding sentence, a spouse (or former spouse) shall be treated as being of the same generation as the individual to whom such spouse is (or was) married. The term “applicable date” means the latest of— Any legally adopted child of an individual, any child who is lawfully placed with an individual for legal adoption by the individual, and any eligible foster child of an individual (within the meaning of section 152(f)(1)(C)), shall be treated as a child of such individual by blood. For purposes of subsection (b)(1)(B), the following trusts may be shareholders: For purposes of subsection (b)(1)— For purposes of subsection (b)(1)(B), the term “estate” includes the estate of an individual in a case under title 11 of the United States Code. For purposes of subsection (b)(1)(D), a corporation shall not be treated as having more than 1 class of stock solely because there are differences in voting rights among the shares of common stock. For purposes of subsection (b)(1)(D), straight debt shall not be treated as a second class of stock. For purposes of this paragraph, the term “straight debt” means any written unconditional promise to pay on demand or on a specified date a sum certain in money if— The Secretary shall prescribe such regulations as may be necessary or appropriate to provide for the proper treatment of straight debt under this subchapter and for the coordination of such treatment with other provisions of this title. For purposes of subsection (b)(1)(B), an organization which is— In the case of a qualified subchapter S trust with respect to which a beneficiary makes an election under paragraph (2)— A beneficiary of a qualified subchapter S trust (or his legal representative) may elect to have this subsection apply. An election under this paragraph shall be made separately with respect to each corporation the stock of which is held by the trust. If there is an election under this paragraph with respect to any beneficiary, an election under this paragraph shall be treated as made by each successive beneficiary unless such beneficiary affirmatively refuses to consent to such election. Any election, or refusal, under this paragraph shall be made in such manner and form, and at such time, as the Secretary may prescribe. An election under this paragraph, once made, may be revoked only with the consent of the Secretary. An election under this paragraph shall be effective up to 15 days and 2 months before the date of the election. For purposes of this subsection, the term “qualified subchapter S trust” means a trust— the terms of which require that— If a qualified subchapter S trust ceases to meet any requirement of paragraph (3)(A), the provisions of this subsection shall not apply to such trust as of the date it ceases to meet such requirement. If any qualified subchapter S trust ceases to meet any requirement of paragraph (3)(B) but continues to meet the requirements of paragraph (3)(A), the provisions of this subsection shall not apply to such trust as of the first day of the first taxable year beginning after the first taxable year for which it failed to meet the requirements of paragraph (3)(B). For purposes of this section— Except as provided in subparagraph (B), the term “electing small business trust” means any trust if— The term “electing small business trust” shall not include— For purposes of subparagraph (A), the term “purchase” means any acquisition if the basis of the property acquired is determined under section 1012. For purposes of this section, the term “potential current beneficiary” means, with respect to any period, any person who at any time during such period is entitled to, or at the discretion of any person may receive, a distribution from the principal or income of the trust (determined without regard to any power of appointment to the extent such power remains unexercised at the end of such period). If a trust disposes of all of the stock which it holds in an S corporation, then, with respect to such corporation, the term “potential current beneficiary” does not include any person who first met the requirements of the preceding sentence during the 1-year period ending on the date of such disposition. An election under this subsection shall be made by the trustee. Any such election shall apply to the taxable year of the trust for which made and all subsequent taxable years of such trust unless revoked with the consent of the Secretary. For special treatment of electing small business trusts, see section 641(c). Restricted bank director stock shall not be taken into account as outstanding stock of the S corporation in applying this subchapter (other than section 1368(f)). For purposes of this subsection, the term “restricted bank director stock” means stock in a bank (as defined in section 581) or a depository institution holding company (as defined in section 3(w)(1) of the Federal Deposit Insurance Act (12 U.S.C. 1813(w)(1))), if such stock— For treatment of certain distributions with respect to restricted bank director stock, see section 1368(f). In the case of a bank which changes from the reserve method of accounting for bad debts described in section 585 or 593 for its first taxable year for which an election under section 1362(a) is in effect, the bank may elect to take into account any adjustments under section 481 by reason of such change for the taxable year immediately preceding such first taxable year.