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TITLE 26-INTERNAL REVENUE CODE (b) Electing small business corporation For purposes of this subchapter, the term "electing small business corporation" means, with respect to any taxable year, a small busi- ness corporation which has made an election under section 1372(a) which, under section 1372, is in effect for such taxable year. (c) Stock owned by husband and wife For purposes of subsection (a)(1) stock which- (1) is community property of a husband and wife (or the income from which is community income) under the applicable community property law of a State, or (2) is held by a husband and wife as Joint tenants, tenants by the entirety, or tenants in common, (3) was, on the date of death of a spouse, stock described in paragraph (1) or (2), and is, by reason of such death, held by the estate of the deceased spouse and the surviving spouse, or by the estates of both spouses (by reason of their deaths on the same date), in the same proportion as held by the spouses before such death, or (4) was, on the date of the death of a surviv- ing spouse, stock described in paragraph (3), and is, by reason of su.ch death, held by the estates of both spouses in the same propor- tion as held by the spouses before their deaths, shall be treated as owned by one shareholder. (d) Ownership of certain stock For purposes of subsection (a), a corporation shall not be considered a member of an affili- ated group at any time during any taxable year by reason of the ownership of stock in another corporation if such other corporation- (1) has not begun business at any time on or after the date of its incorporation and before the close of such taxable year, and (2) does not have taxable income for the period included within such taxable year. (e) Special shareholder rules (1) A small business corporation which has been an electing small business corporation for a period of five consecutive taxable years may not have more than 15 shareholders. (2) If, during the 5-year period set forth in paragraph (1), the number of shareholders of an electing small business corporation in- creases to an amount in excess of 10 (but not in excess of 15) solely by reason of additional shareholders who acquired their stock through inheritance, the corporation may have a number of additional shareholders equal to the number by which the inheriting shareholders cause the total number of share- holders of such corporation to exceed 10. (f) Certain trusts permitted as shareholders For purposes of subsection (a), the following trusts may be shareholders: (1) A trust all of which is treated as owned by the grantor under subpart E of part I of subchapter J of this chapter. (2) A trust created primarily to exercise the voting power of stock transferred to it. (3) Any trust with respect to stock trans- ferred to it pursuant to the terms of a will, but only for the 60-day period beginning on the day on which such stock is transferred to it. In the case of a trust described in paragraph (2), each beneficiary of the trust shall, for pur- poses of subsection (a)(1), be treated as a share- holder. (Added Pub. L. 85-866, title I, § 64(a), Sept. 2, 1958, 72 Stat. 1650, and amended Pub. L. 86- 376, § 2(a), Sept. 23, 1959, 73 Stat. 699; Pub. L. 88-272, title II, § 233(a), Feb. 26, 1964, 78 Stat. 112; Pub. L. 94-455, title IX, § 902(a)(1), (2), (c) (1), (2), Oct. 4, 1976, 90 Stat. 1608, 1609.) AMENDMENTS 1976-Subsec. (a)(l). Pub. L. 94-455, §902(a)(1), in- serted "(except as provided in subsection (e))" follow- ing "have". Subsec. (a)(2). Pub. L. 94-455, § 902(c)(2)(B), substi- tuted "(other than an estate and other than a trust described in subsection f)" for "(other than an estate)". Subsecs. (c)(3), (4). Pub. L. 94-455, § 902(c)(1), added subsecs. (c)(3) and (4). Subsec. (e). Pub. L. 94-455, § 902(a)(2), added subsec. (e. Subsec. i). Pub. L. 94-455, § 902(c)(2)(A), added subsec. (f). 1964-Subsec. (d). Pub. L. 88-272 added subsec. (d). 1959-Subsec. (c). Pub. L. 86-376 added subsec. (c). EFFECTIVE DATE OF 1976 AENDMENr Section 902(a)(3) of Pub. L. 94-455 provided that: "The amendments made by this subsection tto sub- secs. (a)(1) and (e) of this section] shall apply to tax- able years beginning after December 31, 1976." Section 902(c)(4) of Pub. L. 94-455 provided that: "The amendments made by this subsection [to sub- secs. (a)(2), (c), (e)(1). and (f) of this section] shall apply to taxable years beginning after December 31, 1976." EFFECTIVE DATE OF 1964 AENDMENT Section 233(c) of Pub. L. 88-272 provided that: "The amendment made by subsection (a) [to this section] shall apply with respect to taxable years of corpora- tions beginning after December 31, 1962. The amend- ment made by subsection (b) [to section 1375 of this title] shall apply with respect to taxable years of cor- porations beginning after December 31, 1957." EFFECTIVE DATE OF 1959 AMENDMENT Section 2(d) of Pub. L. 86-376 provided in part that the amendment by section 2(a) of Pub. L. 86-376 adding subsec. (c) of this section shall apply to taxable years beginning after Dec. 31, 1959. EFFECTIVE DATE Section applicable only with respect to taxable years beginning after Dec. 31, 1957, see section 64(e) of Pub. L. 85-866, set out as Effective Date of 1958 Amend- ment nol.e under section 172 of this title. APPLICATION OF SUBSEC. (C) TO TAXABLE YEARS BEGINNING AFTER DEC. 31, 1957, AND BEFORE JAN. 1, 1960 Section 23 of Pub. L. 87-834, Oct. 16. 1962, 76 Stat. 1065, provided for the application of subsec. c) of this section to taxable years beginning after Dec. 31, 1957, and before Jan. 1, 1960, under certain conditions relat- ing to election and consent by corporations and con- sents by shareholders, and provided for special rules relating to the tolling of statutes of limitation. SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 46, 48, 5OB, 57, 58, 163, 170, 183, 189. 280, 465, 992, 1016, 1251, 1372, 6037, 6362 of this title; title 46 section 1177. § 1371 Page 731