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TITLE 26-INTERNAL REVENUE CODE ness corporations beginning after April 14, 1966, but not applicable with respect to sales or exchanges oc- curring before February 24, 1966, see section 2(c) of Pub. L. 89-389, set out as Effective Date note under section 1378 of this title. EFr-rsxvE DAT 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 note under section 172 of this title. SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 46, 1372, 1375, 1376, 1377, 1378, 6042 of this title. § 1374. Corporation net operating loss allowed to shareholders (a) General rule A net operating loss of an electing small busi- ness corporation for any taxable year shall be allowed as a deduction from gross income of the shareholders of such corporation in the manner and to the extent set forth in this section. (b) Allowance of deduction Each person who is a shareholder of an elect- ing small business corporation at any time during a taxable year of the corporation in which it has a net operating loss shall be al- lowed as a deduction from gross income, for his taxable year in which or with which the tax- able year of the corporation ends (or for the final taxable year of a shareholder who dies before the end of the corporatiun's taxable year), an amount equal to his portion of the corporation's net operating loss (as determined under subsection (c)). The deduction allowed by this subsection shall, for purposes of this chap- ter, be considered as a deduction attributable to a trade or business carried on by the share- holder. (c) Determination of shareholder's portion (1) In general For purposes of this section, a shareholder's portion of the net operating loss of an elect- ing small business corporation is his pro rata share of the corporation's net operating loss (computed as provided in section 172(c), except that the deductions provided in part VIII (except section 248) of subchapter B shall not be allowed) for his taxable year in which or with which the taxable year of the corporation ends. For purposes of this para- graph, a shareholder's pro rata share of the corporation's net operating loss is the sum of the portions of the corporation's daily net op- erating loss attributable on a pro rata basis to the shares held by him on each day of the taxable year. For purposes of the preceding sentence, the corporation's daily net operat- ing loss is the corporation's net operating loss divided by the number of days in the taxable year. (2) Limitation A shareholder's portion of the net operat- ing loss of an electing small business corpora- tion for any taxable year shall not exceed the sum of- (A) the adjusted basis (determined with- out regard to any adjustment under section 1376 for the taxable year) of the sharehold- er's stock in the electing small business cor- poration, determined as of the close of the taxable year of the corporation (or, in re- spect of stock sold or otherwise disposed of during such taxable year, as of the day before the day of such sale or other disposi- tion), and (B) the adjusted basis (determined with- out regard to any adjustment under section 1376 for the taxable year) of any indebted- ness of the corporation to the shareholder, determined as of the close of the taxable year of the corporation (or, if the share- holder is not a shareholder as of the close of such taxable year, as of the close of the last day in such taxable year on which the shareholder was a shareholder in the corpo- ration). (Added Pub. L. 85-866, title I, § 64(a), Sept. 2, 1958, 72 Stat. 1653, and amended Pub. L. 86- 376, § 2(b), Sept. 23, 1959, 73 Stat. 699; Pub. L. 94-455, title XIX, § 1901(a)(150), Oct. 4, 1976, 90 Stat. 1788.) AMNDMENTS 1978-Subsec. (b). Pub. L. 94-455, § 1901(a)(150)(A), added provision, formerly set out in subsec. (d)(1), that the deduction be considered as a deduction attrib- utable to a trade or business carried on by the share- holder. Subsec. (d). Pub. L. 94-455, § 1901(a)(150)(B), struck out subsec. (d) which related to the adjustment of net operating loss carrybacks and carryovers of sharehold- ers. 1959-Subsec. (b). Pub. L. 86-376 inserted "(or for the final taxable year of a shareholder who dies before the end of the corporation's taxable year)" fol- lowing "the taxable year of the corporation ends". EFFECTIvE DATE OF 1976 AMENDMENT Amendment by Pub. L. 94-455 applicable with re- spect to taxable years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L. 94-455, set out as an Ef- fective Date of 1976 Amendment note under section 2 of this title. EFFECTIVE DATE OF 1959 AMENDMENT Section 2(d) of Pub. L. 86-376 provided in part that the amendment of subsec. (b) of this section by section 2(b) of Pub. L. 86-376 shall take effect on Sept. 24, 1959. EFFEcTIvE DATE Section applicable only with respect to taxable years beginning after Dee. 31, 1957, see section 64(e) of Pub. L. 85-866, set out as Effective Date of 1958 Amend- ment note under section 172 of this title. DEDUCTION OF DECEASED SHAREHOLDER'S PRO RATA SHARE OF NET OPERATING LOSS Section 30 of Pub. L. 87-834, Oct. 16, 1962, 76 Stat. 1069, provided that: "The amendment made by section 2(b) of Public Law 86-376 (73 Stat. 699) [which insert- ed "(or for the final taxable year of a shareholder who dies before the end of the corporation's taxable year)" in subsee. (b) of this section] shall take effect on Sep- tember 2, 1958." SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 58, 163, 1372, 1375, 1376, 1377 of this title. Page 735 § 1374