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asset value accrued prior to conversion from C to S corporation
status. H. Conf. Rept. 99-841 (Vol. II), at II-203 (1986), 1986-
3 C.B. (Vol. 4) 1, 203; see also sec. 1374(d)(3)(B).
I. Transition Rule
The TRA provides a transition rule applicable to certain
small corporations with values of up to $10 million (i.e.,
qualified corporations). See TRA sec. 633(d). The TRA section
633(d) transition rule states, in paragraph (1), that “the
amendments made by this subtitle shall not apply to the
applicable percentage of each gain or loss which (but for this
paragraph) would be recognized * * * by reason of the amendments
made by this subtitle.” TRA sec. 633(d)(1), as amended by
Technical and Miscellaneous Revenue Act of 1988 (TAMRA), Pub. L.
100-647, sec. 1006(g)(3), 102 Stat. 3407. The transition rule
further states that “Paragraph (1) shall not apply to” ordinary
and short-term capital gains. TRA sec. 633(d)(2), 100 Stat.
2279. Thus, the transition rule provides that, if a qualified
corporation sells assets, long-term capital gain is subject to
prior section 1374, while ordinary and short-term capital gains
are subject to section 1374, as amended. See TRA sec. 633(d)(1),
(d)(2).
The transition rule is applicable “in the case of a
qualified corporation which makes an election to be an S
corporation under section 1362 * * * before January 1, 1989,
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