110 STAT. 1780 PUBLIC LAW 104-188—AUG. 20, 1996 then, notwithstanding the circumstances resulting in such ineffectiveness or termination, such corporation shall be treated as an S corporation during the period specified by the Secretary.". (b) LATE ELECTIONS, ETC. —Subsection (b) of section 1362 is amended by adding at the end the following new paragraph: "(5) AUTHORITY TO TREAT LATE ELECTIONS, ETC., AS TIMELY. —If— "(A) an election under subsection (a) is made for any taxable year (determined without regard to paragraph (3)) after the date prescribed by this subsection for making such election for such taxable year or no such election is made for any taxable year, and "(B) the Secretary determines that there was reasonable cause for the failure to timely make such election, the Secretary may treat such an election as timely made for such taxable year (and paragraph (3) shall not apply).". 26 USC 1362 (c) EFFECTIVE DATE.— The amendments made by subsections note. (a) and (b) shall apply with respect to elections for taxable years beginning after December 31, 1982. SEC. 1306. AGREEMENT TO TERMINATE YEAR. Paragraph (2) of section 1377(a) (relating to pro rata share) is amended to read as follows: " (2) ELECTION TO TERMINATE YEAR. — "(A) IN GENERAL.— Under regulations prescribed by the Secretary, if any shareholder terminates the shareholder's interest in the corporation during the taxable year and all affected shareholders and the corporation agree to the application of this paragraph, paragraph (1) shall be applied to the affected shareholders as if the taxable year consisted of 2 taxable years the first of which ends on the date of the termination. "(B) AFFECTED SHAREHOLDERS.—For purposes of subparagraph (A), the term 'affected shareholders' means the shareholder whose interest is terminated and all shareholders to whom such shareholder has transferred shares during the taxable year. If such shareholder has transferred shares to the corporation, the term 'affected shareholders' shall include all persons who are shareholders during the taxable year.". SEC. 1307. EXPANSION OF POST-TERMINATION TRANSITION PERIOD. (a) IN GENERAL. — Paragraph (1) of section 1377(b) (relating to post-termination transition period) is amended by striking "and" at the end of subparagraph (A), by redesignating subparagraph (B) as subparagraph (C), and by inserting after subparagraph (A) the following new subparagraph: "(B) the 120-day period beginning on the date of any determination pursuant to an audit of the taxpayer which follows the termination of the corporation's election and which adjusts a subchapter S item of income, loss, or deduction of the corporation arising during the S period (as defined in section 1368(e)(2)), and". (b) DETERMINATION DEFINED. —Paragraph (2) of section 1377(b) is amended by striking subparagraphs (A) and (B), by redesignating subparagraph (C) as subparagraph (B), and by inserting before subparagraph (B) (as so redesignated) the following new subparagraph:
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