PUBLIC L A W 100-647—NOV. 10, 1988
102 STAT. 3405
"(5) TREATMEENT OP CERTAIN BUILT-IN ITEMS.— "(A) INCOME ITEMS.—Any item of income which is prop-
erly taken into account during the recognition period but which is attributable to periods before the 1st taxable year for which the corporation was an S corporation shall be treated as a recognized built-in gain for the taxable year in which it is properly taken into account. "(B) DEDUCTION ITEMS.—Any amount which is allowable as a deduction during the recc^nition period but which is attributable to periods before the 1st taxable year referred to in subparagraph (A) shall be treated as a recognized built-in loss for the taxable year for which it is allowable as a deduction. "(C) ADJUST»«ENT TO NET UNREAUZED BUILT-IN GAIN.—The
amount of the net unrealized built-in gain shall be properly adjusted for amounts treated as recognized built-in gains or losses under this paragraph. "(6) TREATMENT OF CERTAIN PROPERTY.—If the adjusted basis of any asset is determined (in whole or in part) by reference to the adjusted basis of any other asset held by the S corporation as of the b ^ i n n i n g of the 1st taxable year referral to in paragraph (3)— "(A) such asset shall be treated as held by the S corporation as of the beginning of such 1st taxable year, and "(B) any determination under paragraph (3)(B) or (4)(B) with respect to such asset shall be made by reference to the fair market value and adjusted basis of such other asset as of the beginning of such 1st taxable year. "(7) RECOGNITION PERIOD.—The term 'recognition period' means the 10-year period beginning with the 1st day of the 1st taxable year for which the corporation was an S corporation. "(8) TREATMENT OF TRANSFER OF ASSETS FROM CORPORATION TO s CORPORATION.—
"(A) IN GENERAL.—Except to the extent provided in regulations, if— "(i) an S corporation acquires any asset, and "(ii) the S corporation's basis in such asset is determined (in whole or in part) by reference to the basis of such asset (or any other property) in the hands of a C corporation, then a tax is hereby imposed on any net recognized built-in gain attributable to any such assets for any taxable year b a n n i n g in the rec(^nition period. The amount of such tax shall be determined under the rules of this section as modified by subparagraph (B). "(B) MODIFICATIONS.—For purposes of this paragraph, the modifications of this subparagraph are as follows: "(i) IN GENERAL.—The preceding paragraphs of this subsection shall be applied by taking into account the day on which the assets were acquired by the S corporation in lieu of the b a n n i n g of the 1st taxable year for which the corporation was an S corporation. "(ii) SUBSECTION (C)(1) NOT TO APPLY.—Subsection
(c)(1) shall not apply. "(9) REFERENCE TO 1ST TAXABLE YEAR.—Any reference in this section to the 1st taxable year for which the corporation was an S corporation shall be treated as a reference to the 1st taxable
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