[Code of Federal Regulations]
[Title 26, Volume 11]
[Revised as of April 1, 2002]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.1366-4]

[Page 730]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
GAIN OR LOSS ON DISPOSITION OF PROPERTY--Table of Contents
 
Sec. 1.1366-4  Special rules limiting the passthrough of certain items of an S corporation to its shareholders.

    (a) Passthrough inapplicable to section 34 credit. Section 1.1366-
1(a) does not apply to any credit allowable under section 34 (relating 
to certain uses of gasoline and special fuels).
    (b) Reduction in passthrough for tax imposed on built-in gains. For 
purposes of Sec. 1.1366-1(a), if for any taxable year of the S 
corporation a tax is imposed on the corporation under section 1374, the 
amount of the tax imposed is treated as a loss sustained by the S 
corporation during the taxable year. The character of the deemed loss is 
determined by allocating the loss proportionately among the net 
recognized built-in gains giving rise to the tax and attributing the 
character of each net recognized built-in gain to the allocable portion 
of the loss.
    (c) Reduction in passthrough for tax imposed on excess net passive 
income. For purposes of Sec. 1.1366-1(a), if for any taxable year of the 
S corporation a tax is imposed on the corporation under section 1375, 
each item of passive investment income shall be reduced by an amount 
that bears the same ratio to the amount of the tax as the net amount of 
the item bears to the total net passive investment income for that 
taxable year.

[T.D. 8852, 64 FR 71648, Dec. 22, 1999; 65 FR 12471, Mar. 9, 2000]