United States Code
USC most recently checked for updates: Mar 21, 2023
If, for any applicable election year, the amount determined under subsection (b)(2) exceeds the amount determined under subsection (b)(1), the entity shall be entitled to a refund of such excess for such year.
In the case of a partnership, net income shall be the amount (not below zero) determined by taking into account the aggregate amount of the partnership’s items described in section 702(a) (other than credits and tax-exempt income).
In the case of an S corporation, net income shall be the amount (not below zero) determined by taking into account the aggregate amount of the S corporation’s items described in section 1366(a) (other than credits and tax-exempt income). If the S corporation was a C corporation for the base year, its taxable income for such year shall be treated as its net income for such year (and such corporation shall be treated as an S corporation for such taxable year for purposes of paragraph (3)).
For purposes of subparagraph (A) or (B), any limitation on the amount of any item described in either such paragraph which may be taken into account for purposes of computing the taxable income of a partner or shareholder shall be disregarded.
The term “applicable payment” means amounts paid by a partnership or S corporation which are includible in gross income of a partner or shareholder.
The applicable percentage is the percentage determined in accordance with the following table:
If the applicable election year of
the partnership or S corporation
The applicable percentage is:
1990 or thereafter
Notwithstanding the preceding provisions of this paragraph, the applicable percentage for any partnership or S corporation shall be 100 percent unless more than 50 percent of such entity’s net income for the short taxable year which would have resulted if the entity had not made an election under section 444 would have been allocated to partners or shareholders who would have been entitled to the benefits of section 806(e)(2)(C) of the Tax Reform Act of 1986 with respect to such income.
Any guaranteed payment by a partnership shall not be treated as an applicable payment, and the amount of the net income of the partnership shall be determined by not taking such guaranteed payment into account.
For purposes of subparagraph (A), the term “guaranteed payment” means any payment referred to in section 707(c).
The term “deferral period” has the meaning given to such term by section 444(b)(4).
The term “base year” means, with respect to any applicable election year, the taxable year of the partnership or S corporation preceding such applicable election year.
The term “applicable election year” means any taxable year of a partnership or S corporation with respect to which an election is in effect under section 444.
Each partnership or S corporation which makes an election under section 444 shall include on any required return or statement such information as the Secretary shall prescribe as is necessary to carry out the provisions of this section.
Except as otherwise provided in this subsection or in regulations prescribed by the Secretary, any payment required by this section shall be assessed and collected in the same manner as if it were a tax imposed by subtitle C.
The amount of any payment required by this section shall be paid on or before April 15 of the calendar year following the calendar year in which the applicable election year begins (or such later date as may be prescribed by the Secretary).
For purposes of determining interest, any payment required by this section shall be treated as a tax; except that no interest shall be allowed with respect to any refund of a payment made under this section.
In the case of any failure by any person to pay on the date prescribed therefor any amount required by this section, there shall be imposed on such person a penalty of 10 percent of the underpayment. For purposes of the preceding sentence, the term “underpayment” means the excess of the amount of the payment required under this section over the amount (if any) of such payment paid on or before the date prescribed therefor. No penalty shall be imposed under this subparagraph on any failure which is shown to be due to reasonable cause and not willful neglect.
For purposes of part II of subchapter A of chapter 68, any payment required by this section shall be treated as a tax.
If any partnership or S corporation willfully fails to comply with the requirements of this section, section 444 shall cease to apply with respect to such partnership or S corporation.