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TITLE 26-INTERNAL REVENUE CODE (1) an amount equal to the tax, determined as provided in section 1201(a), on the amount by which the net capital gain of the corpora- tion for the taxable year exceeds $25,000, or (2) an amount equal to the tax which would be imposed by section 11 on the taxable income (computed as provided in section 1373(d)) of the corporation for the taxable year if the corporation was not an electing small business corporation. No credit shall be allowable under part IV of subchapter A of this chapter (other than under section 39) against the tax imposed by subsec- tion (a). (C) Exceptions (1) In general Subsection (a) shall not apply to an electing small business corporation for any taxable year if the election under section 1372(a) which is in effect with respect to such corpo- ration for such taxable year has been in effect for the 3 immediately preceding tax- able years. (2) New corporations Subsection (a) shall not apply to an electing small business corporation if- (A) it has been in existence for less than 4 taxable years, and (B) an election under section 1372(a) has been in effect with respect to such corpora- tion for each of its taxable years. (3) Property with substituted basis If- (A) but for paragraph (1) or (2), subsec- tion (a) would apply for the taxable year, (B) any long-term capital gain is attribut- able to property acquired by the electing small business corporation during the period beginning 3 years before the first day of the taxable year and ending on the last day of the taxable year, and (C) the basis of such property is deter- mined in whole or in part by reference to the basis of any property in the hands of another corporation which was not an elect- ing small business corporation throughout all of the period described in subparagraph (B) before the transfer by such other corpo- ration and during which such other corpo- ration was in existence, then subsection (a) shall apply for the tax- able year, but the amount of the tax deter- mined under subsection (b) shall not exceed a tax, determined as provided in section 1201(a), on the net capital gain attributable to property acquired as provided in subpara- graph (B) and havins a basis described in sub- paragraph (C). (Added Pu i. L. 89-389, § 2(a), Apr. 14, 1966, 80 Stat. 113, and amended Pub. L. 91-172, title V, §511(c)(4), Dec. 30, 1969, 83 Stat. 638; Pub. L. 94-455, title XIX, § 1901(a)(152), (b)(33)(R), Oct. 4, 1976, 90 Stat. 1789, 1802.) AMzND mENs 1976-Subsec. (a)(1). Pub. L. 94-455, § 1901(b)(33)(R), substituted "the net capital gain" for "the excess of the net long-term capital gain over the net short term capital loss,". Subsec. (b). Pub. L. 94455, § 1901(a)(152), (b)(33)(R), substituted in par. (1) "the net capital gain" for "the excess of the net long-term capital gain over the net short term capital loss," and in provisions following par. (2) struck out the provision relating to where the $25,000 limitation shall be deducted from. Subsec. (c)(3). Pub. L. 94455, § 1901(b)(33)(R), sub. stituted "the net capital gain" for "the excess of the net long-term capital gain over the net short-term cap- ital loss,". 1969-Subsec. (b). Pub. L. 91-172, § 511(c)(4)(B), added provision requiring in the application of section 1201(a)(1)(A) and (B) of this title for purposes of par. (1) of subsec. (b) of this section, the $25,000 limitation shall first be deducted from the amount (determined without regard to this subsec.) subject to tax in accor- dance with section 1201(a)(1)(B), to the extent there- of, and then from the amount (determined without regard to this subsec.) subject to tax in accordance with section 1201(a)(1)(A). Subsec. (b)(1). Pub. L. 91-172, § 511(c)(4)(A), substi- tuted "the tax, determined as p)rovided in section 1201(a), on" for "25 percent of." Subsec. (c)(3). Pub. L. 91-172, § 511(c)(4)(C), substi- tuted "a tax, determined as provided in section 1201(a), on" for "25 percent of." ErFCrvE DATE oF 1976 AlmmmE~uT 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. 94455, set out as an Ef- fective Date of 1976 Amendment note under section 2 of this title. EFECTV DATE OF 1969 AmENDsrNr Amendment by Pub. L. 91-172 applicable with re- spect to taxable years beginning after Dec. 31, 1969, see section 511(d) of Pub. L. 91-172, set out as an Ef- fective Date of 1969 Amendment rote under section 1201 of this title. Erxc'rivE DATE Section 2(c) of Pub. L. 89-389 provided that: "The amendments made by this section [adding this section and amending sections 46(a)(3), 1372(b)(1), 1373(c), and 1375(a)(3) of this title] shall apply with respect to taxable years of electing small business corporations bcginning after the date of enactment of this Act (Apr. 14, 1966], but such amendments shall not apply with respect to sales or exchanges occurring before February 24, 1966." SECTION REFERM TO IN OTHER SECTIONS This sectl-n is referred to in sections 46, 50A, 58, 1372, 1373, 1375 of this title. § 1379. Certain qualified pension, etc., plans (a) Additional requirement for qualification of stock bonus or profit-sharing plans A trust forming part of a stock bonus or profit-sharing plan which provides contribu- tions or benefits for employees some or all of whom are shareholder-employees shall not con- stitute a qualified trust under section 401 (re- lating to qualified pension, profit-sharing, and stock bonus plans) unless the plan of which such trust is a part provides that forfeitures at- tributable to contributions deductible under section 404(a)(3) for any taxable year (begin- ning after December 31, 1970) of the employer with respect to which it is an electing small business corporation may not inure to the bene- fit of any individual who is a shareholder-em- ployee for such taxable year. A plan shall be considered as satisfying the requirement of this subsection for the period beginning with the first day of a taxable year and ending with the Page 7/39 § 1379