100 STAT. 2276
PUBLIC LAW 99-514—OCT. 22, 1986 graph (A) or (B) of paragraph (1) shall be treated as taxable income. r, •, ? . •--,t "(3) CREDITS.—
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"(A) IN GENERAL.—Except as provided in subparagraph (B), no credit shall be allowable under part IV of subchapter A of this chapter (other than under section 34) against the tax imposed by subsection (a). "(B) BUSINESS CREDIT CARRYFORWARDS FROM C YEARS AL-
LOWED.—Notwithstanding section 1371(b)(1), any business Ccredit carryforward under section 39 arising in a taxable -Elf year for which the corporation was a C corporation shall be allowed as a credit against the tax imposed by subsection (a) in the same manner as if it were imposed by section 11. "(4) COORDINATION WITH SECTION 1201(a).—For purposes of section 1201(a)— "(A) the tax imposed by subsection (a) shall be treated as if it were imposed by section 11, and
"(B) the lower of the amounts specified in subparagraphs (A) and (B) of paragraph (1) shall be treated as the taxable income. ^. ,^., "(c) LIMITATIONS.— " ' >• "(1) CORPORATIONS WHICH WERE ALWAYS S CORPORATIONS.—
Subsection (a) shall not apply to any corporation if an election under section 1362(a) has been in effect with respect to such corporation for each of its taxable years. Except as provided in regulations, an S corporation and any predecessor corporation shall be treated as 1 corporation for purposes of the preceding sentence. "(2) LIMITATION ON AMOUNT OF RECOGNIZED BUILT-IN GAINS.—
The amount of the recognized built-in gains taken into account under this section for any taxable year shall not exceed the excess (if any) of— "(A) the net unrealized built-in gain, over "(B) the recognized built-in gains for prior taxable years beginning in the recognition period. "(d) DEFINITIONS AND SPECIAL RULES.—For purposes of this section— "(1) NET UNREALIZED BUILT-IN GAIN.—The term 'net unrealized built-in gain' means the amount (if any) by which— "(A) the fair market value of the sissets of the S corporation as of the beginning of its 1st taxable year for which an election under section 1362(a) is in effect, exceeds "(B) the aggregate adjusted bases of such assets at such time. "(2) RECOGNIZED BUILT-IN GAIN.—The term 'recognized builtin gain' means any gain recognized during the recognition period on the disposition of any asset except to the extent that the S corporation establishes that— "(A) such asset was not held by the S corporation as of the beginning of the 1st taxable year referred to in paragraph (1), or "(B) such gain exceeds the excess (if any) of— "(i) the fair market value of such asset as of the beginning of such 1st taxable year, over "(ii) the adjusted basis of the asset as of such time.
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