S-Corp Income Tax Exclusion

§ 1363. Effect of election on corporation(a) General ruleExcept as otherwise provided in this subchapter, an S corporation shall not be subject to the taxes imposed by this chapter. (b) Computation of corporation’s taxable incomeThe taxable income of an S corporation shall be computed in the same manner as in the case of an individual, except that—(1) the items described in section 1366(a)(1)(A) shall be separately stated, (2) the deductions referred to in section 703(a)(2) shall not be allowed to the corporation, (3) section 248 shall apply, and (4) section 291 shall apply if the S corporation (or any predecessor) was a C corporation for any of the 3 immediately preceding taxable years. (c) Elections of the S corporation(1) In generalExcept as provided in paragraph (2), any election affecting the computation of items derived from an S corporation shall be made by the corporation. (2) ExceptionsIn the case of an S corporation, elections under the following provisions shall be made by each shareholder separately—(A) section 617 (relating to deduction and recapture of certain mining exploration expenditures), and (B) section 901 (relating to taxes of foreign countries and possessions of the United States). (d) Recapture of LIFO benefits(1) In generalIf—(A) an S corporation was a C corporation for the last taxable year before the first taxable year for which the election under section 1362(a) was effective, and (B) the corporation inventoried goods under the LIFO method for such last taxable year, the LIFO recapture amount shall be included in the gross income of the corporation for such last taxable year (and appropriate adjustments to the basis of inventory shall be made to take into account the amount included in gross income under this paragraph). (2) Additional tax payable in installments(A) In generalAny increase in the tax imposed by this chapter by reason of this subsection shall be payable in 4 equal installments. (B) Date for payment of installmentsThe first installment under subparagraph (A) shall be paid on or before the due date (determined without regard to extensions) for the return of the tax imposed by this chapter for the last taxable year for which the corporation was a C corporation and the 3 succeeding installments shall be paid on or before the due date (as so determined) for the corporation’s return for the 3 succeeding taxable years. (C) No interest for period of extensionNotwithstanding section 6601(b), for purposes of section 6601, the date prescribed for the payment of each installment under this paragraph shall be determined under this paragraph. (3) LIFO recapture amountFor purposes of this subsection, the term “LIFO recapture amount” means the amount (if any) by which—(A) the inventory amount of the inventory asset under the first-in, first-out method authorized by section 471, exceeds (B) the inventory amount of such assets under the LIFO method.