{"identifier":"/us/usc/t26/s1363","title":26,"num":"\u00a7\u202f1363.","heading":"Effect of election on corporation","text":"\u00a7\u202f1363.\nEffect of election on corporation\n(a)\nGeneral rule\nExcept as otherwise provided in this subchapter, an S corporation shall not be subject to the taxes imposed by this chapter.\n(b)\nComputation of corporation\u2019s taxable income\nThe taxable income of an S corporation shall be computed in the same manner as in the case of an individual, except that\u2014\n(1) the items described in section 1366(a)(1)(A) shall be separately stated,\n(2) the deductions referred to in section 703(a)(2) shall not be allowed to the corporation,\n(3) section 248 shall apply, and\n(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.\n(c)\nElections of the S corporation\n(1)\nIn general\nExcept as provided in paragraph (2), any election affecting the computation of items derived from an S corporation shall be made by the corporation.\n(2)\nExceptions\nIn the case of an S corporation, elections under the following provisions shall be made by each shareholder separately\u2014\n(A) section 617 (relating to deduction and recapture of certain mining exploration expenditures), and\n(B) section 901 (relating to taxes of foreign countries and possessions of the United States).\n(d)\nRecapture of LIFO benefits\n(1)\nIn general\nIf\u2014\n(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\n(B) the corporation inventoried goods under the LIFO method for such last taxable year,\nthe 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).\n(2)\nAdditional tax payable in installments\n(A)\nIn general\nAny increase in the tax imposed by this chapter by reason of this subsection shall be payable in 4 equal installments.\n(B)\nDate for payment of installments\nThe 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\u2019s return for the 3 succeeding taxable years.\n(C)\nNo interest for period of extension\nNotwithstanding 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.\n(3)\nLIFO recapture amount\nFor purposes of this subsection, the term \u201cLIFO recapture amount\u201d means the amount (if any) by which\u2014\n(A) the inventory amount of the inventory asset under the first-in, first-out method authorized by section 471, exceeds\n(B) the inventory amount of such assets under the LIFO method.\nFor purposes of the preceding sentence, inventory amounts shall be determined as of the close of the last taxable year referred to in paragraph (1).\n(4)\nOther definitions\nFor purposes of this subsection\u2014\n(A)\nLIFO method\nThe term \u201cLIFO method\u201d means the method authorized by section 472.\n(B)\nInventory assets\nThe term \u201cinventory assets\u201d means stock in trade of the corporation, or other property of a kind which would properly be included in the inventory of the corporation if on hand at the close of the taxable year.\n(C)\nMethod of determining inventory amount\nThe inventory amount of assets under a method authorized by section 471 shall be determined\u2014\n(i) if the corporation uses the retail method of valuing inventories under section 472, by using such method, or\n(ii) if clause (i) does not apply, by using cost or market, whichever is lower.\n(D)\nNot treated as member of affiliated group\nExcept as provided in regulations, the corporation referred to in paragraph (1) shall not be treated as a member of an affiliated group with respect to the amount included in gross income under paragraph (1).\n(5)\nSpecial rule\nSections 1367(a)(2)(D) and 1371(c)(1) shall not apply with respect to any increase in the tax imposed by reason of this subsection.","url":"https://projectusc.org/usc/t26/s1363.html","content":[{"t":"sec","id":"/us/usc/t26/s1363","children":[{"t":"num","text":"\u00a7\u202f1363."},{"t":"heading","text":"Effect of election on corporation"},{"t":"subsec","id":"/us/usc/t26/s1363/a","children":[{"t":"num","text":"(a)"},{"t":"heading","text":"General rule"},{"t":"content","children":[{"t":"p","text":"Except as otherwise provided in this subchapter, an S corporation shall not be subject to the taxes imposed by this chapter.","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"subsec","id":"/us/usc/t26/s1363/b","children":[{"t":"num","text":"(b)"},{"t":"heading","text":"Computation of corporation\u2019s taxable income"},{"t":"chapeau","text":"The taxable income of an S corporation shall be computed in the same manner as in the case of an individual, except that\u2014"},{"t":"para","id":"/us/usc/t26/s1363/b/1","children":[{"t":"num","text":"(1)"},{"t":"content","text":" the items described in section 1366(a)(1)(A) shall be separately stated,","tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t26/s1363/b/2","children":[{"t":"num","text":"(2)"},{"t":"content","text":" the deductions referred to in section 703(a)(2) shall not be allowed to the corporation,","tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t26/s1363/b/3","children":[{"t":"num","text":"(3)"},{"t":"content","text":" section 248 shall apply, and","tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t26/s1363/b/4","children":[{"t":"num","text":"(4)"},{"t":"content","text":" section 291 shall apply if the S corporation (or any predecessor) was a C corporation for any of the 3 immediately preceding taxable years.","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"subsec","id":"/us/usc/t26/s1363/c","children":[{"t":"num","text":"(c)"},{"t":"heading","text":"Elections of the S corporation"},{"t":"para","id":"/us/usc/t26/s1363/c/1","children":[{"t":"num","text":"(1)"},{"t":"heading","text":"In general"},{"t":"content","children":[{"t":"p","text":"Except as provided in paragraph (2), any election affecting the computation of items derived from an S corporation shall be made by the corporation.","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t26/s1363/c/2","children":[{"t":"num","text":"(2)"},{"t":"heading","text":"Exceptions"},{"t":"chapeau","text":"In the case of an S corporation, elections under the following provisions shall be made by each shareholder separately\u2014"},{"t":"subpara","id":"/us/usc/t26/s1363/c/2/A","children":[{"t":"num","text":"(A)"},{"t":"content","text":" section 617 (relating to deduction and recapture of certain mining exploration expenditures), and","tail":"\n"}],"tail":"\n"},{"t":"subpara","id":"/us/usc/t26/s1363/c/2/B","children":[{"t":"num","text":"(B)"},{"t":"content","text":" section 901 (relating to taxes of foreign countries and possessions of the United States).","tail":"\n"}],"tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"subsec","id":"/us/usc/t26/s1363/d","children":[{"t":"num","text":"(d)"},{"t":"heading","text":"Recapture of LIFO benefits"},{"t":"para","id":"/us/usc/t26/s1363/d/1","children":[{"t":"num","text":"(1)"},{"t":"heading","text":"In general"},{"t":"chapeau","text":"If\u2014"},{"t":"subpara","id":"/us/usc/t26/s1363/d/1/A","children":[{"t":"num","text":"(A)"},{"t":"content","text":" 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","tail":"\n"}],"tail":"\n"},{"t":"subpara","id":"/us/usc/t26/s1363/d/1/B","children":[{"t":"num","text":"(B)"},{"t":"content","text":" the corporation inventoried goods under the LIFO method for such last taxable year,","tail":"\n"}],"tail":"\n\n"},{"t":"continuation","text":"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).","tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t26/s1363/d/2","children":[{"t":"num","text":"(2)"},{"t":"heading","text":"Additional tax payable in installments"},{"t":"subpara","id":"/us/usc/t26/s1363/d/2/A","children":[{"t":"num","text":"(A)"},{"t":"heading","text":"In general"},{"t":"content","children":[{"t":"p","text":"Any increase in the tax imposed by this chapter by reason of this subsection shall be payable in 4 equal installments.","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"subpara","id":"/us/usc/t26/s1363/d/2/B","children":[{"t":"num","text":"(B)"},{"t":"heading","text":"Date for payment of installments"},{"t":"content","children":[{"t":"p","text":"The 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\u2019s return for the 3 succeeding taxable years.","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"subpara","id":"/us/usc/t26/s1363/d/2/C","children":[{"t":"num","text":"(C)"},{"t":"heading","text":"No interest for period of extension"},{"t":"content","children":[{"t":"p","text":"Notwithstanding 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.","tail":"\n"}],"tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t26/s1363/d/3","children":[{"t":"num","text":"(3)"},{"t":"heading","text":"LIFO recapture amount"},{"t":"chapeau","text":"For purposes of this subsection, the term \u201cLIFO recapture amount\u201d means the amount (if any) by which\u2014"},{"t":"subpara","id":"/us/usc/t26/s1363/d/3/A","children":[{"t":"num","text":"(A)"},{"t":"content","text":" the inventory amount of the inventory asset under the first-in, first-out method authorized by section 471, exceeds","tail":"\n"}],"tail":"\n"},{"t":"subpara","id":"/us/usc/t26/s1363/d/3/B","children":[{"t":"num","text":"(B)"},{"t":"content","text":" the inventory amount of such assets under the LIFO method.","tail":"\n"}],"tail":"\n\n"},{"t":"continuation","text":"For purposes of the preceding sentence, inventory amounts shall be determined as of the close of the last taxable year referred to in paragraph (1).","tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t26/s1363/d/4","children":[{"t":"num","text":"(4)"},{"t":"heading","text":"Other definitions"},{"t":"chapeau","text":"For purposes of this subsection\u2014"},{"t":"subpara","id":"/us/usc/t26/s1363/d/4/A","children":[{"t":"num","text":"(A)"},{"t":"heading","text":"LIFO method"},{"t":"content","children":[{"t":"p","text":"The term \u201cLIFO method\u201d means the method authorized by section 472.","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"subpara","id":"/us/usc/t26/s1363/d/4/B","children":[{"t":"num","text":"(B)"},{"t":"heading","text":"Inventory assets"},{"t":"content","children":[{"t":"p","text":"The term \u201cinventory assets\u201d means stock in trade of the corporation, or other property of a kind which would properly be included in the inventory of the corporation if on hand at the close of the taxable year.","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"subpara","id":"/us/usc/t26/s1363/d/4/C","children":[{"t":"num","text":"(C)"},{"t":"heading","text":"Method of determining inventory amount"},{"t":"chapeau","text":"The inventory amount of assets under a method authorized by section 471 shall be determined\u2014"},{"t":"clause","id":"/us/usc/t26/s1363/d/4/C/i","children":[{"t":"num","text":"(i)"},{"t":"content","text":" if the corporation uses the retail method of valuing inventories under section 472, by using such method, or","tail":"\n"}],"tail":"\n"},{"t":"clause","id":"/us/usc/t26/s1363/d/4/C/ii","children":[{"t":"num","text":"(ii)"},{"t":"content","text":" if clause (i) does not apply, by using cost or market, whichever is lower.","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"subpara","id":"/us/usc/t26/s1363/d/4/D","children":[{"t":"num","text":"(D)"},{"t":"heading","text":"Not treated as member of affiliated group"},{"t":"content","children":[{"t":"p","text":"Except as provided in regulations, the corporation referred to in paragraph (1) shall not be treated as a member of an affiliated group with respect to the amount included in gross income under paragraph (1).","tail":"\n"}],"tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t26/s1363/d/5","children":[{"t":"num","text":"(5)"},{"t":"heading","text":"Special rule"},{"t":"content","children":[{"t":"p","text":"Sections 1367(a)(2)(D) and 1371(c)(1) shall not apply with respect to any increase in the tax imposed by reason of this subsection.","tail":"\n"}],"tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"text","text":"\n"},{"t":"text","text":"\n"}]}]}