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of certain reorganizations and the like. See sec. 1371(c)(2);
see also Eustice & Kuntz, Federal Income Taxation of S
Corporations, sec. 8.08[8][b], at 8-62 (3d ed. 1993).16
Bonnevista and Castle Towers each elected S corporation
status sometime after their incorporation. We infer that each
corporation was a C corporation before electing S status.
Moreover, Bonnevista was an S corporation for taxable years prior
to 1983. Petitioners have failed to show that Bonnevista and
Castle Towers did not have accumulated earnings and profits
arising from their C corporation operations before electing S
status, that Bonnevista had no accumulated earnings and profits
from S corporation operations for taxable years prior to 1983, or
15(...continued)
under the subchapter S rules in effect before revision
in 1982, a corporation electing subchapter S for a
taxable year increased its accumulated earnings and
profits if its earnings and profits for the year
exceeded both its taxable income for the year and its
distributions out of that year’s earnings and profits.
As a result of this rule, a shareholder may later be
required to include in his or her income the
accumulated earnings and profits when it is distributed
by the corporation. The 1982 revision to subchapter S
repealed this rule for earnings attributable to taxable
years beginning after 1982 but did not do so for
previously accumulated S corporation earnings and
profits.
16 In 1996, Congress eliminated certain pre-1983 accumulated
earnings and profits for certain S corporations that existed
before 1983, effective for the first taxable year beginning after
Dec. 31, 1996. See Small Business Job Protection Act of 1996,
Pub. L. 104-188, sec. 1311, 100 Stat. 1755, 1784. Accordingly,
this legislative provision is inapplicable to the instant case.
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