Built-In Gains Tax Recognition Period Expiration

§ 1374. Tax imposed on certain built-in gains(a) General ruleIf for any taxable year beginning in the recognition period an S corporation has a net recognized built-in gain, there is hereby imposed a tax (computed under subsection (b)) on the income of such corporation for such taxable year. (b) Amount of tax(1) In generalThe amount of the tax imposed by subsection (a) shall be computed by applying the highest rate of tax specified in section 11(b) to the net recognized built-in gain of the S corporation for the taxable year. (2) Net operating loss carryforwards from C years allowedNotwithstanding section 1371(b)(1), any net operating loss carryforward arising in a taxable year for which the corporation was a C corporation shall be allowed for purposes of this section as a deduction against the net recognized built-in gain of the S corporation for the taxable year. For purposes of determining the amount of any such loss which may be carried to subsequent taxable years, the amount of the net recognized built-in gain shall be treated as taxable income. Rules similar to the rules of the preceding sentences of this paragraph shall apply in the case of a capital loss carryforward arising in a taxable year for which the corporation was a C corporation. (3) Credits(A) In generalExcept as provided in subparagraph (B), no credit shall be allowable under part IV of subchapter A of this chapter (other than under section 34) against the tax imposed by subsection (a). (B) Business credit carryforwards from C years allowedNotwithstanding section 1371(b)(1), any business credit carryforward under section 39 arising in a taxable year for which the corporation was a C corporation shall be allowed as a credit against the tax imposed by subsection (a) in the same manner as if it were imposed by section 11. (c) Limitations(1) Corporations which were always S corporationsSubsection (a) shall not apply to any corporation if an election under section 1362(a) has been in effect with respect to such corporation for each of its taxable years. Except as provided in regulations, an S corporation and any predecessor corporation shall be treated as 1 corporation for purposes of the preceding sentence. (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.