[Code of Federal Regulations]
[Title 26, Volume 11]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.1366-4]

[Page 743-744]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--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

[[Page 744]]

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]