102 STAT. 3404
PUBLIC LAW 100-647—NOV. 10, 1988 the rules of the preceding sentences of this paragraph shall apply in the case of a capital loss carryforward arising in a taxable year for which the corporation was a C corporation." (3) Subparagraph (B) of section 1374(b)(4) of the 1986 Code is amended to read as follows: "(B) the amount of the net recognized built-in gain shall be treated as the taxable income." (4) Paragraph (2) of section 1374(c) of the 1986 Code is amended by striking out "recognized built-in gains" each place it appears and inserting in lieu thereof "net recognized built-in gain". (5)(A) Section 1374 of the 1986 Code is amended by striking out all that follows paragraph (1) of subsection (d) and inserting in lieu thereof the following: "(2) N E T RECOGNIZED BUILT-IN GAIN.—
"(A) IN GENERAL.—The term 'net recognized built-in gain' means, with respect to any taxable year in the recognition period, the lesser of— "(i) the amount which would be the taxable income of the S corporation for such taxable year if (except as provided in subsection (b)(2)) only recognized built-in gains and recognized built-in losses were taken into account, or "(ii) such corporation's taxable income for such taxable year (determined as provided in section 1375(b)(l)(B)). "(B) CARRYOVER.—If, for any taxable year, the amount referred to in clause (i) of subparagraph (A) exceeds the amount referred to in clause (ii) of subparagraph (A), such excess shall be treated as a recognized built-in gain in the succeeding taxable year. The preceding sentence shall apply only in the case of a corporation treated as an S corporation by reason of an election made on or after March 31, 1988. "(3) 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 for which it was an S corporation, 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. "(4) RECOGNIZED BUILT-IN LOSSES.—The term 'recognized builtin loss' means any loss recognized during the recognition period on the disposition of any asset to the extent that the S corporation establishes that— "(A) such asset was held by the S corporation as of the beginning of the 1st taxable year referred to in paragraph (3), and "(B) such loss does not exceed the excess of— "(i) the adjusted basis of such asset as of the beginning of such 1st taxable year, over "(ii) the fair market value of such Eisset as of such time.
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