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TITLE 26-INTERNAL REVENUE CODE gross receipts from sources outside the United States, and for all succeeding taxable years of the corporation. (5) Passive Investment income (A) Except as provided in subparagraph (B), an election under subsection (a) made by a small business corporation shall termi- nate if, for any taxable year of the corpora- tion for which the election is in effect, such corporation has gross receipts more than 20 percent of which is passive investment income. Such termination shall be effective for the taxable year of the corporation in which it has gross receipts of such amount, and for all succeeding taxable years of the corporation. (B) Subparagraph (A) shall not apply with respect to a taxable year in which a small business corporation has gross re- ceipts more than 20 percent of which is pas- sive investment income, if- (i) such taxable year is the first taxable year in which the corporation commenced the active conduct of any trade or busi- ness or the next succeeding taxable year; and (ii) the amount of passive investment income for such taxable year is less than $3,000. (C) For purposes of this paragraph, the term "passive investment income" means gross receipts derived from royalties, rents, dividends, interest, annuities, and sales or exchanges of stock or securities (gross re- ceipts from such sales or exchanges being taken into account for purposes of this paragraph only to the extent of gains there- from). Gross receipts derived from sales or exchanges of stock or securities for pur- poses of this paragraph shall not include amounts received by an electing small busi- ness corporation which are treated under section 331 (relating to corporate liquida- tions) as payments in exchange for stock where the electing small business corpora- tion owned more than 50 percent of each class of the stock of the liquidating corpora- tion. (f) Election after termination If a small business corporation has made an election under subsection (a) and if such elec- tion has been terminated or revoked under sub- section (e), such corporation (and any successor corporation) shall not be eligible to make an election under subsection (a) for any taxable year prior to its fifth taxable year which begins after the first taxable year for which such ter- mination or revocation is effective, unless the Secretary consents to such election. (Added Pub. L. 85-866, title I, § 64(a), Sept. 2, 1958, 72 Stat. 1650, and amended Pub. L. 87-29, § 2, May 4, 1961, 75 Stat. 64; Pub. L. 89-389, §§ 2(b)(2), 3(a), Apr. 14, 1966, 80 Stat. 114; Pub. L. 91-683, § l(a), Jan. 12, 1971, 84 Stat. 2067; Pub. L. 94-455, title IX, § 902(c)(3), title XIX, §§ 1901(a)(149), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1609, 1788, 1834.) AMENDMENTS 1976--Subsec. (b)(1). Pub. L. 94455, § 1901(a)(149)(A), substituted "(other than as provided by section 58(d)(2) and by 'section 1378)" for "(other than the tax imposed by section 1378)". Subsec. c). Pub. L. 94-455, § 1901(a)(149)(B), among other changes, struck out "or his delegate" following "Secretary" and provisions relating to an election under subsec. (a) by a small business corporation for its first taxable year which begins after Dec. 31, 1957, and on or before the date of the enactment of this subchapter, and ends after such date at any time within the 90-day period beginning on the day after the date of the enactment of this subchapter, or if its taxable year ends within such 90-day period, before the close of such taxable year. Subsec. (e)(1), Pub. L. 94-455, §902(c)(3), among other changes, substituted "affirmatively refuses (in such manner as the Secretary shall by regulations pre- scribe) to consent to such election on or before the 60th day after the day on which he acquires the stock" for "does not consent to such election within such time as the Secretary or his delegate shall pre- scribe by regulations", and added provisions relating to the time limitation for the estate of a decedent ac- quiring stock to affirmatively refuse to consent to an election. Subsec. (e)(2). Pub. L. 94455, §1906(b)(13)(A), struck out "or his delegate" following "Secretary". Subsec. (f). Pub. L. 94-455, § 1906(b)(13)(A), struck out "or his delegate" following "Secretary". Subsec. (g). Pub. L. 94-455, § 19061(a)(149)(C), struck out subsec. (g) which related to consent by certain shareholders of stock held as community property. 1971--Subsec. (e)(5)(C). Pub. L. 91-683 inserted sen. tence providing that gross receipts derived from sales or exchanges of stock or securities shall not include amounts received by an electing small business corpo- ration which are treated under section 331 as pay- ments in exchange for stock where the electing small business corporation owned more than 50 percent of each class of the stock of the liquidating corporation. 1966-Subsec. (b)(1). Pub. L. 89-389, § 2(b)(2), insert- ed "(other than the tax imposed by section 1378)" fol- lowing "this chapter". Subsec. (e)(5). Pub. L. 89-389, § 3(a), lumped royal- ties, rents, dividends, interest, annuities, and sales or exchanges of stock or securities under the general term "passive investment income" and provided that, during the first two taxable years in which the corpo- ration carries on the active conduct of a trade or busi- ness, the provision requiring the termination of elec- tion when passive investment income exceeds 20 per- cent of the gross receipts be waived if the passive in- vestment income is less than $3,000. 1961-Subsec. (g). Pub. L. 87-29 added subsec. (g). EFFEcTIvE DATE OF 1976 AMiurN~r Amendment of subsec. (e)(1) by section 902(c)(3) of Pub. L. 94455 applicable to taxable years beginning after Dec. 31, 1976, see section 902(c)(4) of Pub. L. 94- 455, set out as Effective Date of 1976 Amendment note under section 1371 of this title. Amendment of subsecs. (b)(1), (c), and (g) by section 1901(a)(149) of Pub. L. 94-455 applicable with respect to taxable years beginning after Dec. 31, 1976, see sec- tion 1901(d) of Pub. L. 94-455, set out as Effective Date of 1976 Amendment note under section 2 of this title. EYFEcTriv DAT OF 1971 AmmmErr; LIMITATION ON DEFIcIENcY AssEssMEmts Section l(b), (c) of Pub. L. 91-683 provided that: "(b) The amendment made by subsection (a) [to subsec. (e)(5)(C) of this section] shall apply to taxable years of electing small business corporations ending after the date of the enactment of this Act [Jan. 12, 1971J. Such amendment shall also apply with respect to any taxable year ending before October 7, 1970, but only if- "(1) on such date the making of a refund or the allowance of a credit to the electing small business corporation is not prevented by any law or rule of law, and Page 733 § 1372