PUBLIC LAW 104-188—AUG. 20, 1996 110 STAT. 1777 is 7 days after the date of the enactment of the Small Business Job Protection Act of 1996 and ending on December 31, 1997,". Subtitle C—Provisions Relating to S Corporations SEC. 1301. S CORPORATIONS PERMITTED TO HAVE 75 SHAREHOLDERS. Subparagraph (A) of section 1361(b)(1) (defining small business corporation) is amended by striking "35 shareholders" and inserting "75 shareholders". SEC. 1302. ELECTING SMALL BUSINESS TRUSTS. (a) GENERAL RULE.— Subparagraph (A) of section 1361(c)(2) (relating to certain trusts permitted as shareholders) is amended by inserting after clause (iv) the following new clause: "(v) An electing small business trust.". (b) CURRENT BENEFICIARIES TREATED AS SHAREHOLDERS.— Subparagraph (B) of section 1361(c)(2) is amended by adding at the end the following new clause: "(v) In the case of a trust described in clause (v) of subparagraph (A), each potential current beneficiary of such trust shall be treated as a shareholder; except that, if for any period there is no potential current beneficiary of such trust, such trust shall be treated as the shareholder during such period.". (c) ELECTING SMALL BUSINESS TRUST DEFINED. —Section 1361 (defining S corporation) is amended by adding at the end the following new subsection: " (e) ELECTING SMALL BUSINESS TRUST DEFINED. — "(1) ELECTING SMALL BUSINESS TRUST.— For purposes of this section— "(A) IN GENERAL. — Except as provided in subparagraph (B), the term 'electing small business trust' means any trust if— "(i) such trust does not have as a beneficiary any person other than (I) an individual, (II) an estate, or (III) an organization described in paragraph (2), (3), (4), or (5) of section 170(c) which holds a contingent interest and is not a potential current beneficiary, "(ii) no interest in such trust was acquired by purchase, and "(iii) an election under this subsection applies to such trust. "(B) CERTAIN TRUSTS NOT ELIGIBLE.— The term 'electing small business trust' shall not include— "(i) any qualified subchapter S trust (as defined in subsection (d)(3)) if an election under subsection (d)(2) applies to any corporation the stock of which is held by such trust, and "(ii) any trust exempt from tax under this subtitle. " (C) PURCHASE.— For purposes of subparagraph (A), the term 'purchase' means any acquisition if the basis of the property acquired is determined under section 1012. "(2) POTENTIAL CURRENT BENEFICIARY.—For purposes of this section, the term 'potential current beneficiary' means.
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