26 U.S.C. § 1375
§ 1375. Tax imposed when passive investment income of corporation having accumulated earnings and profits exceeds 25 percent of gross receipts
No plain-English explainer yet. Below is the official text. Explainers are being added section by section.
History
Added in 1982 by the Public Law 97-354. Last changed December 21, 2005 by the Gulf Opportunity Zone Act of 2005.
Every change, newest first (6)
- December 21, 2005Gulf Opportunity Zone Act of 2005
- August 20, 1996Small Business Job Protection Act of 1996
- November 10, 1988Technical and Miscellaneous Revenue Act of 1988
- October 22, 1986Tax Reform Act of 1986
- July 18, 1984Deficit Reduction Act of 1984
- October 19, 1982Public Law 97-354 · added this section
The law as written
Current through Public Law 119-102. Amendment notes omitted.
If for the taxable year an S corporation has—
accumulated earnings and profits at the close of such taxable year, and
gross receipts more than 25 percent of which are passive investment income,
then there is hereby imposed a tax on the income of such corporation for such taxable year. Such tax shall be computed by multiplying the excess net passive income by the highest rate of tax specified in section 11(b).
For purposes of this section—
Except as provided in subparagraph (B), the term “excess net passive income” means an amount which bears the same ratio to the net passive income for the taxable year as—
the amount by which the passive investment income for the taxable year exceeds 25 percent of the gross receipts for the taxable year, bears to
the passive investment income for the taxable year.
The amount of the excess net passive income for any taxable year shall not exceed the amount of the corporation’s taxable income for such taxable year as determined under section 63(a)—
without regard to the deductions allowed by part VIII of subchapter B (other than the deduction allowed by section 248, relating to organization expenditures), and
without regard to the deduction under section 172.
The term “net passive income” means—
passive investment income, reduced by
the deductions allowable under this chapter which are directly connected with the production of such income (other than deductions allowable under section 172 and part VIII of subchapter B).
The terms “passive investment income” and “gross receipts” have the same respective meanings as when used in paragraph (3) of section 1362(d).
Notwithstanding paragraph (3), the amount of passive investment income shall be determined by not taking into account any recognized built-in gain or loss of the S corporation for any taxable year in the recognition period. Terms used in the preceding sentence shall have the same respective meanings as when used in section 1374.
No credit shall be allowed under part IV of subchapter A of this chapter (other than section 34) against the tax imposed by subsection (a).
If the S corporation establishes to the satisfaction of the Secretary that—
it determined in good faith that it had no accumulated earnings and profits at the close of a taxable year, and
during a reasonable period of time after it was determined that it did have accumulated earnings and profits at the close of such taxable year such earnings and profits were distributed,
the Secretary may waive the tax imposed by subsection (a) for such taxable year.