PUBLIC LAW 104-188—AUG. 20, 1996 110 STAT. 1785 "(D) AT-RISK LIMITATIONS. — To the extent that any increase in adjusted basis described in subparagraph (B) would have increased the shareholder's amount at risk under section 465 if such increase had occurred on the day preceding the commencement of the post-termination transition period, rules similar to the rules described in subparagraphs (A) through (C) shall apply to any losses disallowed by reason of section 465(a).". SEC. 1313. ADJUSTMENTS TO BASIS OF INHERITED S STOCK TO REFLECT CERTAIN ITEMS OF INCOME. (a) IN GENERAL. —Subsection (b) of section 1367 (relating to adjustments to basis of stock of shareholders, etc.) is amended by adding at the end the following new paragraph: "(4) ADJUSTMENTS IN CASE OF INHERITED STOCK. — "(A) IN GENERAL. — If any person acquires stock in an S corporation by reason of the death of a decedent or by bequest, devise, or inheritance, section 691 shall be applied with respect to any item of income of the S corporation in the same manner as if the decedent had held directly his pro rata share of such item. "(B) ADJUSTMENTS TO BASIS.— The basis determined under section 1014 of any stock in an S corporation shall be reduced by the portion of the value of the stock which is attributable to items constituting income in respect of the decedent.". (b) EFFECTIVE DATE. —The amendment made by subsection (a) 26 USC 1367 shall apply in the case of decedents dying after the date of the ^°^- enactment of this Act. SEC. 1314. S CORPORATIONS ELIGIBLE FOR RULES APPLICABLE TO REAL PROPERTY SUBDIVIDED FOR SALE BY NONCOR- PORATE TAXPAYERS. (a) IN GENERAL.— Subsection (a) of section 1237 (relating to real property subdivided for sale) is amended by striking "other than a corporation" in the material preceding paragraph (1) and inserting "other than a C corporation". (b) CONFORMING AMENDMENT. — Subparagraph (A) of section 1237(a)(2) is amended by inserting "an S corporation which included the taxpayer as a shareholder," after "controlled by the taxpayer,". SEC. 1315. FINANCIAL INSTITUTIONS, Subparagraph (A) of section 1361(b)(2) (defining ineligible corporation), as redesignated by section 1308(a), is amended to read as follows: "(A) a financial institution which uses the reserve method of accounting for bad debts described in section 585,". SEC. 1316. CERTAIN EXEMPT ORGANIZATIONS ALLOWED TO BE SHAREHOLDERS. (a) ELIGIBILITY TO BE SHAREHOLDERS.— (1) IN GENERAL. —Subparagraph (B) of section 1361(b)(1) (defining small business corporation) is amended to read as follows: "(B) have as a shareholder a person (other than an estate, a trust described in subsection (c)(2), or an organiza-
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