26 U.S.C. § 1361: S corporation defined

For purposes of this title, the term “S corporation” means, with respect to any taxable year, a small business corporation for which an election under section 1362(a) is in effect for such year. For purposes of this title, the term “C corporation” means, with respect to any taxable year, a corporation which is not an S corporation for such year. have more than 100 shareholders, have as a shareholder a person (other than an estate, a trust described in subsection (c)(2), or an organization described in subsection (c)(6)) who is not an individual, have a nonresident alien as a shareholder, and have more than 1 class of stock. a financial institution which uses the reserve method of accounting for bad debts described in section 585, an insurance company subject to tax under subchapter L, or a DISC or former DISC. a corporation which is a qualified subchapter S subsidiary shall not be treated as a separate corporation, and all assets, liabilities, and items of income, deduction, and credit of a qualified subchapter S subsidiary shall be treated as assets, liabilities, and such items (as the case may be) of the S corporation. 100 percent of the stock of such corporation is held by the S corporation, and the S corporation elects to treat such corporation as a qualified subchapter S subsidiary. For purposes of this title, if any corporation which was a qualified subchapter S subsidiary ceases to meet the requirements of subparagraph (B), such corporation shall be treated as a new corporation acquiring all of its assets (and assuming all of its liabilities) immediately before such cessation from the S corporation in exchange for its stock. the sale were a sale of an undivided interest in the assets of such corporation (based on the percentage of the corporation’s stock sold), and the sale were followed by an acquisition by such corporation of all of its assets (and the assumption by such corporation of all of its liabilities) in a transaction to which section 351 applies. an election under subparagraph (B)(ii) to be treated as a qualified subchapter S subsidiary, or an election under section 1362(a) to be treated as an S corporation, Except to the extent provided by the Secretary, this paragraph shall not apply to part III of subchapter A of chapter 61 (relating to information returns). a husband and wife (and their estates), and all members of a family (and their estates). The term “members of a family” means a common ancestor, any lineal descendant of such common ancestor, and any spouse or former spouse of such common ancestor or any such lineal descendant. An individual shall not be considered to be a common ancestor if, on the applicable date, the individual is more than 6 generations removed from the youngest generation of shareholders who would (but for this subparagraph) be members of the family. For purposes of the preceding sentence, a spouse (or former spouse) shall be treated as being of the same generation as the individual to whom such spouse is (or was) married. the date the election under section 1362(a) is made, the earliest date that an individual described in clause (i) holds stock in the S corporation, or October 22, 2004 . Any legally adopted child of an individual, any child who is lawfully placed with an individual for legal adoption by the individual, and any eligible foster child of an individual (within the meaning of section 152(f)(1)(C)), shall be treated as a child of such individual by blood. A trust all of which is treated (under subpart E of part I of subchapter J of this chapter) as owned by an individual who is a citizen or resident of the United States. A trust which was described in clause (i) immediately before the death of the deemed owner and which continues in existence after such death, but only for the 2-year period beginning on the day of the deemed owner’s death. A trust with respect to stock transferred to it pursuant to the terms of a will, but only for the 2-year period beginning on the day on which such stock is transferred to it. A trust created primarily to exercise the voting power of stock transferred to it. An electing small business trust. In the case of a corporation which is a bank (as defined in section 581) or a depository institution holding company (as defined in section 3(w)(1) of the Federal Deposit Insurance Act ( 12 U.S.C. 1813(w)(1) ), a trust which constitutes an individual retirement account under section 408(a), including one designated as a Roth IRA under section 408A, but only to the extent of the stock held by such trust in such bank or company as of the date of the enactment of this clause. In the case of a trust described in clause (i) of subparagraph (A), the deemed owner shall be treated as the shareholder. In the case of a trust described in clause (ii) of subparagraph (A), the estate of the deemed owner shall be treated as the shareholder. In the case of a trust described in clause (iii) of subparagraph (A), the estate of the testator shall be treated as the shareholder. In the case of a trust described in clause (iv) of subparagraph (A), each beneficiary of the trust shall be treated as a shareholder. In the case of a trust described in clause (v) of subparagraph (A), each potential current beneficiary of such trust shall be treated as a shareholder; except that, if for any period there is no potential current beneficiary of such trust, such trust shall be treated as the shareholder during such period. This clause shall not apply for purposes of subsection (b)(1)(C). In the case of a trust described in clause (vi) of subparagraph (A), the individual for whose benefit the trust was created shall be treated as the shareholder. For purposes of subsection (b)(1)(B), the term “estate” includes the estate of an individual in a case under title 11 of the United States Code. For purposes of subsection (b)(1)(D), a corporation shall not be treated as having more than 1 class of stock solely because there are differences in voting rights among the shares of common stock. For purposes of subsection (b)(1)(D), straight debt shall not be treated as a second class of stock. the interest rate (and interest payment dates) are not contingent on profits, the borrower’s discretion, or similar factors, there is no convertibility (directly or indirectly) into stock, and the creditor is an individual (other than a nonresident alien), an estate, a trust described in paragraph (2), or a person which is actively and regularly engaged in the business of lending money. The Secretary shall prescribe such regulations as may be necessary or appropriate to provide for the proper treatment of straight debt under this subchapter and for the coordination of such treatment with other provisions of this title. described in section 401(a) or 501(c)(3), and exempt from taxation under section 501(a), such trust shall be treated as a trust described in subsection (c)(2)(A)(i), for purposes of section 678(a), the beneficiary of such trust shall be treated as the owner of that portion of the trust which consists of stock in an S corporation with respect to which the election under paragraph (2) is made, and for purposes of applying sections 465 and 469 to the beneficiary of the trust, the disposition of the S corporation stock by the trust shall be treated as a disposition by such beneficiary. A beneficiary of a qualified subchapter S trust (or his legal representative) may elect to have this subsection apply. An election under this paragraph shall be made separately with respect to each corporation the stock of which is held by the trust. If there is an election under this paragraph with respect to any beneficiary, an election under this paragraph shall be treated as made by each successive beneficiary unless such beneficiary affirmatively refuses to consent to such election. Any election, or refusal, under this paragraph shall be made in such manner and form, and at such time, as the Secretary may prescribe. An election under this paragraph, once made, may be revoked only with the consent of the Secretary. An election under this paragraph shall be effective up to 15 days and 2 months before the date of the election. during the life of the current income beneficiary, there shall be only 1 income beneficiary of the trust, any corpus distributed during the life of the current income beneficiary may be distributed only to such beneficiary, the income interest of the current income beneficiary in the trust shall terminate on the earlier of such beneficiary’s death or the termination of the trust, and upon the termination of the trust during the life of the current income beneficiary, the trust shall distribute all of its assets to such beneficiary, and all of the income (within the meaning of section 643(b)) of which is distributed (or required to be distributed) currently to 1 individual who is a citizen or resident of the United States. If a qualified subchapter S trust ceases to meet any requirement of paragraph (3)(A), the provisions of this subsection shall not apply to such trust as of the date it ceases to meet such requirement. If any qualified subchapter S trust ceases to meet any requirement of paragraph (3)(B) but continues to meet the requirements of paragraph (3)(A), the provisions of this subsection shall not apply to such trust as of the first day of the first taxable year beginning after the first taxable year for which it failed to meet the requirements of paragraph (3)(B). such trust does not have as a beneficiary any person other than (I) an individual, (II) an estate, (III) an organization described in paragraph (2), (3), (4), or (5) of section 170(c), or (IV) an organization described in section 170(c)(1) which holds a contingent interest in such trust and is not a potential current beneficiary, no interest in such trust was acquired by purchase, and an election under this subsection applies to such trust. any qualified subchapter S trust (as defined in subsection (d)(3)) if an election under subsection (d)(2) applies to any corporation the stock of which is held by such trust, any trust exempt from tax under this subtitle, and any charitable remainder annuity trust or charitable remainder unitrust (as defined in section 664(d)). For purposes of subparagraph (A), the term “purchase” means any acquisition if the basis of the property acquired is determined under section 1012. For purposes of this section, the term “potential current beneficiary” means, with respect to any period, any person who at any time during such period is entitled to, or at the discretion of any person may receive, a distribution from the principal or income of the trust (determined without regard to any power of appointment to the extent such power remains unexercised at the end of such period). If a trust disposes of all of the stock which it holds in an S corporation, then, with respect to such corporation, the term “potential current beneficiary” does not include any person who first met the requirements of the preceding sentence during the 1-year period ending on the date of such disposition. An election under this subsection shall be made by the trustee. Any such election shall apply to the taxable year of the trust for which made and all subsequent taxable years of such trust unless revoked with the consent of the Secretary. For special treatment of electing small business trusts, see section 641(c). Restricted bank director stock shall not be taken into account as outstanding stock of the S corporation in applying this subchapter (other than section 1368(f)). is required to be held by an individual under applicable Federal or State law in order to permit such individual to serve as a director, and is subject to an agreement with such bank or company (or a corporation which controls (within the meaning of section 368(c)) such bank or company) pursuant to which the holder is required to sell back such stock (at the same price as the individual acquired such stock) upon ceasing to hold the office of director. For treatment of certain distributions with respect to restricted bank director stock, see section 1368(f). In the case of a bank which changes from the reserve method of accounting for bad debts described in section 585 or 593 for its first taxable year for which an election under section 1362(a) is in effect, the bank may elect to take into account any adjustments under section 481 by reason of such change for the taxable year immediately preceding such first taxable year. The amendments made by this section [amending this section and section 1368 of this title ] shall apply to taxable years beginning after December 31, 2006 . In the case of any taxable year beginning after December 31, 1996 , restricted bank director stock (as defined in section 1361(f) of the Internal Revenue Code of 1986, as added by this section) shall not be taken into account in determining whether an S corporation has more than 1 class of stock.” Except as otherwise provided in this subsection, any amendment made by this section [amending this section, sections 48, 108, 267, 318, 465, 1362, 1363, 1367, 1368, 1371, 1374, 1375, 1378, 1379, 6362, and 6659 and provisions set out as a note under this section] shall take effect as if included in the Subchapter S Revision Act of 1982 [ Pub. L. 97–354 ]. Subparagraph (C) of section 108(d)(7) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as amended by subsection (b)(2)) shall apply to contributions to capital after December 31, 1980 , in taxable years ending after such date. any portion of a qualified stock purchase is pursuant to a binding contract entered into on or after October 19, 1982 , and before the date of the enactment of this Act [ July 18, 1984 ], and the purchasing corporation establishes by clear and convincing evidence that such contract was negotiated on the contemplation that, with respect to the deemed sale under section 338 of the Internal Revenue Code of 1986, paragraph (2) of section 1362(e) of such Code would apply, The amendments made by subsection ( l ) [amending section 1362 of this title ] shall apply to any election under section 1362 of the Internal Revenue Code of 1986 (or any corresponding provision of prior law) made after October 19, 1982 . on or before the date of the enactment of this Act [ July 18, 1984 ] 50 percent or more of the stock of an S corporation has been sold or exchanged in 1 or more transactions, and the person (or persons) acquiring such stock establish by clear and convincing evidence that such acquisitions were negotiated on the contemplation that paragraph (2) of section 1362(e) of the Internal Revenue Code of 1986 would apply to the S termination year in which such sales or exchanges occur, Except as otherwise provided in this section, the amendments made by this Act [enacting this section and sections 1362, 1363, 1366 to 1368, 1371 to 1375, 1377 to 1379, and 6241 to 6245 of this title, amending sections 31, 44D to 44F, 46, 48, 50A, 50B, 52, 53, 55, 57, 58, 62, 108, 163, 168, 170, 172, 179, 183, 189, 194, 267, 280, 280A, 291, 447, 464, 465, 613A, 992, 1016, 1101, 1212, 1251, 1254, 1256, 3453, 3454, 4992, 4996, 6037, 6042, 6362, and 6661 of this title and section 1108 of Title 29 , Labor, omitting section 1376 of this title , and enacting provisions set out as a note under section 1 of this title ] shall apply to taxable years beginning after December 31, 1982 . Sections 1379 and 62(9) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as in effect before the date of the enactment of this Act [ Oct. 19, 1982 ]) shall remain in effect for years beginning before January 1, 1984 . Notwithstanding section 241(b) of the Tax Equity and Fiscal Responsibility Act of 1982 [ section 241(b) of Pub. L. 97–248 , set out as a note under section 416 of this title ] in the case of amounts received under a plan of an S corporation, the amendment made by section 239 of such Act [ section 239 of Pub. L. 97–248 , amending section 101 of this title ] shall apply with respect to decedents dying after December 31, 1982 . sections 1362(d)(3), 1366(f)(3), and 1375 of the Internal Revenue Code of 1986 (as amended by this Act [ Pub. L. 97–354 ]) shall apply, and section 1372(e)(5) of such Code (as in effect on the day before the date of the enactment of this Act [ Oct. 19, 1982 ]) shall not apply. In the case of any corporation which on September 28, 1982 , would have been a member of the same affiliated group as an electing small business corporation but for paragraph (3) or (7) of section 1504(b) of the Internal Revenue Code of 1986, subparagraph (A) of section 1361(b)(2) of such Code (as amended by section 2) shall be applied by substituting ‘without regard to the exceptions contained in paragraphs (1), (2), (4), (5), and (6) of subsection (b) thereof’ for ‘without regard to the exceptions contained in subsection (b) thereof’. the amendments made by this Act shall not apply, and subchapter S (as in effect on July 1, 1982 ) of chapter 1 of the Internal Revenue Code of 1986 [former sections 1371 to 1379 of this title] and part III of subchapter L of chapter 1 of such Code [section 831 et seq. of this title] shall apply. as of July 12, 1982 , such corporation was an electing small business corporation and was described in section 831(a) of such Code, such corporation was formed before April 1, 1982 , and proposed (through a written private offering first circulated to investors before such date) to elect to be taxed as a subchapter S corporation and to be operated on an established insurance exchange, or such corporation is approved for membership on an established insurance exchange pursuant to a written agreement entered into before December 31, 1982 , and such corporation is described in section 831(a) of such Code as of December 31, 1984 . the amendments made by this Act shall not apply, and subchapter S (as in effect on July 1, 1982 ) of chapter 1 of the Internal Revenue Code of 1986 [former sections 1371 to 1379 of this title] shall apply. was an electing small business corporation, or was a small business corporation which made an election under section 1372(a) after December 31, 1981 , and before September 28, 1982 , for calendar year 1982, the combined average daily production of domestic crude oil or natural gas of such corporation and any one of its substantial shareholders exceeds 1,000 barrels, and such corporation makes an election under this subparagraph at such time and in such manner as the Secretary of the Treasury or his delegate shall prescribe. For purposes of subparagraph (B), the average daily production of domestic crude oil or domestic natural gas shall be determined under section 613A(c)(2) of such Code without regard to the last sentence thereof. For purposes of subparagraph (B), the term ‘substantial shareholder’ means any person who on July 1, 1982 , owns more than 40 percent (in value) of the stock of the corporation. any termination of the election of the corporation under subchapter S of chapter 1 of such Code, or the first day on which more than 50 percent of the stock of the corporation is newly owned stock within the meaning of section 1378(c)(2) of such Code (as amended by this Act [ Pub. L. 97–354 ]). Paragraph (2) shall also cease to apply with respect to any corporation after the corporation ceases to be described in section 831(a) of such Code. For purposes of determining under subparagraph (A)(ii) whether paragraph (2) ceases to apply to any corporation, section 1378(c)(2) of such Code (as amended by this Act [ Pub. L. 97–354 ]) shall be applied by substituting ‘ December 31, 1984 ’ for ‘ December 31, 1982 ’ each place it appears therein. In the case of existing fringe benefits of a corporation which as of September 28, 1982 , was an electing small business corporation, section 1372 of the Internal Revenue Code of 1986 (as added by this Act [ Pub. L. 97–354 ]) shall apply only with respect to taxable years beginning after December 31, 1987 . the first day of the first taxable year beginning after December 31, 1982 , with respect to which the corporation does not meet the requirements of section 1372(e)(5) of such Code (as in effect on the day before the date of the enactment of this Act [ Oct. 19, 1982 ]), any termination after December 31, 1982 , of the election of the corporation under subchapter S of chapter 1 of such Code, or the first day on which more than 50 percent of the stock of the corporation is newly owned stock within the meaning of section 1378(c)(2) of such Code (as amended by this Act [ Pub. L. 97–354 ]). For purposes of this subsection, the term ‘existing fringe benefit’ means any employee fringe benefit of a type which the corporation provided to its employees as of September 28, 1982 . For purposes of section 1362(g) of the Internal Revenue Code of 1986, as amended by this Act [ Pub. L. 97–354 ] (relating to no election permitted within 5 years after termination of prior election), any termination or revocation under section 1372(e) of such Code (as in effect on the day before the date of the enactment of this Act [ Oct. 19, 1982 ]) shall not be taken into account. Section 1378 of the Internal Revenue Code of 1986 (as added by this Act [ Pub. L. 97–354 ]) shall take effect on the day after the date of the enactment of this Act [ Oct. 19, 1982 ]. For purposes of applying such section, the reference in subsection (a)(2) of such section to an election under section 1362(a) shall include a reference to an election under section 1372(a) of such Code as in effect on the day before the date of the enactment of this Act [ Oct. 19, 1982 ].” described in section 1311(a)(1) of the Small Business Job Protection Act of 1996 [ Pub. L. 104–188 , set out below], and not described in section 1311(a)(2) of such Act, a corporation was an electing small business corporation under subchapter S of chapter 1 of the Internal Revenue Code of 1986 for any taxable year beginning before January 1, 1983 , and such corporation is an S corporation under subchapter S of chapter 1 of such Code for its first taxable year beginning after December 31, 1996 , after September 30, 1982 , and on or before the date of the enactment of this Act [ Jan. 12, 1983 ], stock or securities were transferred to a small business corporation (as defined in section 1361(b) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] as amended by the Subchapter S Revision Act of 1982 [ Pub. L. 97–354 ]) in a transaction to which section 351 of such Code applies, and such corporation is liquidated under section 333 of such Code before March 1, 1983 ,