26 U.S.C. § 1372

Partnership rules to apply for fringe benefit purposes

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(a) General ruleFor purposes of applying the provisions of this subtitle which relate to employee fringe benefits—(1) the S corporation shall be treated as a partnership, and(2) any 2-percent shareholder of the S corporation shall be treated as a partner of such partnership.(b) 2-percent shareholder defined

For purposes of this section, the term “2-percent shareholder” means any person who owns (or is considered as owning within the meaning of section 318) on any day during the taxable year of the S corporation more than 2 percent of the outstanding stock of such corporation or stock possessing more than 2 percent of the total combined voting power of all stock of such corporation.

(Added Pub. L. 97–354, § 2, Oct. 19, 1982, 96 Stat. 1682.)Editorial NotesPrior Provisions

A prior section 1372, added Pub. L. 85–866, title I, § 64(a), Sept. 2, 1958, 72 Stat. 1650; 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, § 1(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; Pub. L. 95–600, title III, § 343, Nov. 6, 1978, 92 Stat. 2843; Pub. L. 95–628, § 5(a), (b), Nov. 10, 1978, 92 Stat. 3628, related to manner, effect, termination, etc., of an election not to be subject to taxes imposed under this chapter, prior to the general revision of this subchapter by section 2 of Pub. L. 97–354.

Statutory Notes and Related SubsidiariesEffective Date

Section applicable to taxable years beginning after Dec. 31, 1982, except that in the case of a taxable year beginning during 1982, sections 1362(d)(3), 1366(f)(3), and 1375 of this title shall apply and subsec. (e)(5) of this section as in effect on the day before Oct. 19, 1982, shall not apply, see section 6(a), (b)(3), of Pub. L. 97–354, set out as a note under section 1361 of this title. For additional provisions relating to the treatment of existing fringe benefit plans and the application of this section, see section 6(d) of Pub. L. 97–354, set out as a note under section 1361 of this title.

Notes of Decisions

Cited in 33 cases (1 in the last 5 years), 1963–2026 · leading case: E. H. Winn, Jr. & Betty Lee Jones Winn v. Comm'r of Internal Revenue, 595 F.2d 1060 (5th Cir. 1979).

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E. H. Winn, Jr. & Betty Lee Jones Winn v. Comm'r of Internal Revenue, 595 F.2d 1060 (5th Cir. 1979). · cites it 3× “The first requires that we interpret the term “passive investment income” in order to determine whether a taxpayer qualified for small business corporation, or “Subchapter S,” tax treatment under 26 U.S.C.A. § 1372 (Internal Revenue Code § 1372).”

Donahue v. Rodd Electrotype Co. of New England, Inc., 328 N.E.2d 505 (Mass. 1975). · cites it 2× “§ 1371 [a] [1970]), to make an election which generally exempts the corporation from taxation ( 26 U.S.C. § 1372 [b] [1] [1970]) and causes inclusion of the corporation's undistributed, as well as distributed, taxable income in the gross income of the stockholders for the year (…”

Swope v. Swope, 739 P.2d 273 (Idaho 1987). · cites it 2× “1372 of the Internal Revenue Code ( 26 U.S.C. § 1372 ). Subchapter "S" is an alternative accounting practice authorized by the Internal Revenue Code which permits a qualifying corporation to avoid double taxation of profits by electing to have the corporate income taxed solely…”

Morris G. Underwood & Jackie Underwood, Individuals v. Comm'r of Internal Revenue, 535 F.2d 309 (5th Cir. 1976). “26 U.S.C. § 1372 (a). Concomitantly, when a Subchapter S corporation suffers a net operating loss, subsections 1374(a) and (d)(1) provide that the loss is passed through to the shareholders, each of whom may use his share of the loss to offset other personal income.”

E. Keith Owens v. Comm'r of Internal Revenue, 568 F.2d 1233 (6th Cir. 1977). “26 U.S.C. § 1372 (a)(b) provides: (a) Eligibility— Except as provided in subsection (f), any small business corporation may elect, in accordance with the provisions of this section, not to be subject to the taxes imposed by this chapter.”

Zinniel v. Comm'r, 883 F.2d 1350 (7th Cir. 1989). · cites it 3× “The underlying action from which the taxpayers seek litigation costs dealt with whether a Sub-chapter S election for the taxpayers’ corporation, Sierra Limited, had been properly terminated under the statute then governing such terminations, 26 U.S.C. § 1372 (e)(1), and the…”

Crouch v. United States, 509 F. Supp. 727 (D. Kan. 1981). · cites it 4× “Defendant states plaintiff’s refund claim did not allege that Seventeen Ventures provided “significant services” which would exclude its rent from “passive investment income” within the meaning of 26 U.S.C. § 1372 (e)(5). In his claim for refund plaintiff stated as follows:…”

Flynn v. Klineman, 403 N.E.2d 1117 (Ind. Ct. App. 1980). “Subsection (e) of 26 U.S.C. § 1372 (1976) provides: “(e) Termination (1) New shareholders (A) An election under subsection (a) made by a small business corporation shall terminate if any person who was not a shareholder in such corporation— (i) on the first day of the first…”

O. Robert Freesen v. Comm'r of Internal Revenue, 798 F.2d 195 (7th Cir. 1986). “to pass tax benefits through as a sub-chapter S firm, even though under both statute ( 26 U.S.C. § 1372 (e)(5)) and regulation ( 26 C.”

Kulick v. Dep't of Revenue, 624 P.2d 93 (Or. 1981). “” 26 USC § 1372 (1976): "(a) Eligibility Except as provided in subsection (f), any small business corporation may elect, in accordance with the provisions of this section, not to be subject to the taxes imposed by this chapter.”

Pac. Coast Music Jobbers, Inc. v. Comm'r of Internal Revenue, 457 F.2d 1165 (5th Cir. 1972). “Hansen, failed to file a Subchapter S election, 26 U.S.C.A. § 1372 (a). In addition, we conclude that appellant Hansen was taxable for constructive receipt of dividends distributed by Pacific during fiscal 1964.”

Brown v. Dep't of Revenue, 411 N.E.2d 882 (Ill. App. Ct. 1980). “(hereinafter referred to as the corporation), a corporation which elected, pursuant to 26 U.S.C. §1372 (1976), to be taxed as a small business corporation, commonly referred to as a “subchapter S corporation” or a “tax option corporation.”

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