Income of a Pennsylvania S Corporation

(a) A Pennsylvania S corporation shall not be subject to the tax imposed by this article, except as provided under subsection (f), but the shareholders of the Pennsylvania S corporation shall be subject to the tax imposed under this article as provided in this article. ((a) amended July 9, 2013, P.L.270, No.52)

(b) If any tax is imposed on a Pennsylvania S corporation (or any qualified Subchapter S subsidiary owned by such Pennsylvania S corporation) pursuant to section 1374 of the Internal Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. § 1374), as amended to January 1, 1997, or pursuant to Article IV or Article VI for any taxable year, then, for purposes of section 307.9, the amount of tax so imposed shall be treated as a loss sustained by such Pennsylvania S corporation during such years. In the case of taxes imposed pursuant to section 1374 of the Internal Revenue Code of 1986, as amended to January 1, 1997, or Article IV, the character of such loss shall be determined by allocating the loss proportionately among the recognized built-in gains giving rise to such tax.

(c) If a Pennsylvania S corporation makes a distribution of property, other than an obligation of such corporation, with respect to its stock and the fair market value of such property exceeds its adjusted basis in the hands of the corporation, then gain shall be recognized on the distribution as if the property had been sold to the distributee at its fair market value.

(d) Any election which may affect the computation of items derived from a Pennsylvania S corporation shall be made by the corporation.

(e) Any deduction, except a net loss deduction, which was disallowed when a corporation was subject to the tax imposed under Article IV shall be allowed in years in which the corporation is a Pennsylvania S corporation to the same extent and in the same manner that the deduction would have been allowed if the corporation had remained subject to the tax imposed under Article IV.

(f) A Pennsylvania S corporation with underreported income shall be subject to the following:

(1) A Pennsylvania S corporation underreporting income by more than one million dollars ($1,000,000) for any tax year shall be liable for the tax, excluding interest, penalties or additions, at the tax rate applicable to the tax year, on the underreported income without regard to the tax liability of the shareholders for the underreported income. The department shall assess the Pennsylvania S corporation for the tax on the underreported income. The department shall not assess the shareholders for the underreported income or the tax thereon; rather, the Pennsylvania S corporation shall be required to provide an amended statement to each shareholder as required under section 330.1 of the shareholder's pro rata share of the underreported income within ninety days of the assessment becoming final. Nothing in this subsection shall relieve the shareholders of their tax liability on the underreported income.

(1.1) Each shareholder shall be allowed a credit for the shareholder's share of the tax assessed against the Pennsylvania S corporation under paragraph (1) and paid by the Pennsylvania S corporation. The credit shall be allowed for the shareholder's taxable year in which the underreported income was required to be reported.

(2) Paragraph (1) shall apply to the following Pennsylvania S corporations:

(i) A Pennsylvania S corporation which has eleven or more shareholders.

(ii) A Pennsylvania S corporation which elects to be subject to this subsection. The election must be included on the Pennsylvania S corporation return to be filed with the department.

(3) Nothing under this section shall require one shareholder to be liable for the payment of a tax liability of another shareholder.

(4) Appeals involving the deficiency assessed under this section may be filed only by the Pennsylvania S corporation, and a reassessment of tax liability shall be binding on the shareholders.

((f) added July 9, 2013, P.L.270, No.52)

(307.8 amended May 7, 1997, P.L.85, No.7) Compiler's Note: Section 42(2) of Act 52 of 2013, which amended subsec. (a) and added subsec. (f), provided that the amendment or addition shall apply to tax years beginning after December 31, 2013.