80 STAT. ]
PUBLIC LAW 89-389-APRIL 14, 1966
111
Public Law 89-389 AN ACT To ameiul subchapter S of chapter 1 of the Internal Revenue Code of 1954, and for other purposes.
April 14, 1966 [H. R. 9883]
Be it enacted by the Senate and House of Representatives of the ignited States of America in Congress assembled, That (a)(1) section Taxes. 1375 of the Internal Revenue Code of 1954 (rehxting to special rules cor^o^rati"ns"^splapplicable to distributions of electing- small business corporations) is ^lai options amended by adding at the end thereof the following new subsection: ^^ ^'^*" ^^'^'* (f)
DlSTRIBL'TIOXS W i T H I N
Sl/^-MoNTH
PERIOD AFTER
C L O S E OF
TAXABLE YEAR.— " (1) DISTRIBUTIONS CONSIDERED AS DISTRIBUTIONS OF UNDISTRIBUTED TAXABLE INCOME.—Any distribution of money made by
a corporation after the close of a taxable year with respect to which it was an electing small business corporation and on or before the 15th day of the third month following the close of such taxable year to a person who was a shareholder of such corporation at the close of such taxable year shall be treated as a distribution of the corporation's undistributed taxable income for such year, to the extent such distribution (when added to the sum of all prior distributions of money made to such person by sudh corporation following the close of such year) does not exceed such person's share of the corporation's undistributed taxable income for such year. Any distribution so treated shall, for purposes of this chapter, be considered a distribution which is not a dividend, and the earnings and profits of the corporation shall not be reduced by reason of such distribution. "(2) SHARE or UNDISTRIBUTED TAXABLE INCOME.—For purposes
of paragraph (1), a person's share of a corporation's undistributed taxable income for a taxable year is the amount required to be included in his gross income under section 1373(b) as a shareholder of such corporation for his taxable year in which or with which the taxable year of the corporation ends. "(3) ELECTION UNDER SUBSECTION (e),—Paragraph (1) shall not apply to any distribution with respect to which an election under subsection (e) applies." (2) Subsection (e) of section 1375 of the Internal Revenue Code of Repeal. 1954 is repealed effective with respect to distributions made after the ^^ ^*^'- ^^'dose of any taxable year of the corporation beginning after the date of the enactment of this Act. (b) Section 1375(d)(2)(B) ( i i) of such Code is amended by striking 72 Stat. 1655. out "under paragraph (1) " and inserting in lieu thereof "under subsection (f) or paragraph (1) of this subsection". (c) Except as provided by subsection (d), the amendments made by subsections (a)(1) and (b) shall apply only with respect to distributions made after the date of the enactment of this Act. (d)(1) The amendments made b j subsections (a)(1) and (b) shall also apply with respect to distributions of money (other than distributions with respect to which an election under section 1375(e) of the Internal Revenue Code of 1954 applies) made by a corporation on or before the date of the enactment of this Act and on or after the date of the first distribution of money during the taxable year designated by the corporation if— (A) such corporation elects to have such amendments apply to all such distributions made by it, and (B) except as otherwise provided by this subsection, all persons (or their personal representatives) who were shareholders
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