9 0 STAT. 1608
PUBLIC LAW 94-455—OCT. 4, 1976
1974. The amendments made by subsection (c) shall apply to taxable years ending after December 31, 1975. SEC. 902. CHANGES IN SUBCHAPTER S RULES. (a) NUMBER OF SHAREHOLDERS.—
26 USC 1371.
(1) IN GENERAL.—Subsection (a)(1) of section 1371 (relating to the definition of small business corporation) is amended to read as follows: " (1) have (except as provided in subsection (e)) more than 10 shareholders;". (2) SPECIAL SHAREHOLDER RULES.—Section 1371 is amended by
adding at the end thereof the following new subsection: " (e) SPECIAL SHAREHOLDER RULES. —
" (1) A small business corporation which has been an electing small business corporation for a period of five consecutive taxable years may not have more than 15 shareholders. " (2) If, during the 5-year period set forth in paragraph (1), the number of shareholders of an electing small business corporation increases to an amount in excess of 10 ( b u t not in excess of 15) solely by reason of additional shareholders who acquired their stock through inheritance, the corporation may have a number of additional shareholders equal to the number by which the inheriting shareholders cause the total number of shareholders of such corporation to exceed 10." (3) EFFECTIVE DATE.—The amendments made by this subsection shall apply to taxable years beginning after December 31, 1976.
26 USC 1371 "°*^-
(b) DISTRIBUTIONS BY SUBCHAPTER S CORPORATIONS.—
26 USC 1377.
(1) IN GENERAL.—Section 1377 (relating to special rules applicable to earnings and profits of electing small business corporations) is amended by a d d i n g at the end thereof the following new subsection: " (d) DISTRIBUTIONS OF UNDISTRIBUTED TAXABLE INCOME PREVIOUSLY
TAXED TO SHAREHOLDERS.—For purposes of determining whether a distribution by an electing small business corporation constitutes a distribution of such corporation's undistributed taxable income previously taxed to shareholders (as provided for in section 1375(d)), the earnings and profits of such corporation for the taxable year in which the distribution is made shall be computed without regard to section 312 (m). Such computation shall be made without regard to section 312(m) only for such purposes." (2) EFFECTIVE DATE.—The amendment made by this subsection shall apply to taxable years beginning after December 31, 1975.
26 USC 1377 note.
(c) ADDITIONAL CHANGES I N SUBCHAPTER S RULES. — (1) ESTATE OF DECEASED SPOUSE NOT TO BE TREATED AS SHARE-
26 USC 1371.
HOLDER.—Subsection (c) of section 1371 (relating to stock owned by husband and wife) is amended to read as follows: " (c) STOCK O W N E D BY HUSBAND AND W I F E. — For purposes of sub-
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section (a)(1) stock which— " (1) is community property of a husband and wife (or the income from which is community income) under the applicable community property law of a State, " (2) is held by a husband and wife as joint tenants, tenants by the entirety, or tenants in common, " (3) was, on the date of death of a spouse, stock described in paragraph (1) o r (2), and is, by reason of such death, held by the estate of the deceased spouse and the surviving spouse, or by the estates of both spouses (by reason of their deaths on the same
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