[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: 26CFR1.1377-2]

[Page 781-782]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.1377-2  Post-termination transition period.

    (a) In general. For purposes of subchapter S of chapter 1 of the 
Internal Revenue Code (Code) and this section, the term post-termination 
transition period means--
    (1) The period beginning on the day after the last day of the 
corporation's last taxable year as an S corporation and ending on the 
later of--
    (i) The day which is 1 year after such last day; or
    (ii) The due date for filing the return for the last taxable year as 
an S corporation (including extensions);
    (2) The 120-day period beginning on the date of any determination 
pursuant to an audit of the taxpayer which follows the termination of 
the corporation's election and which adjusts a subchapter S item of 
income, loss, or deduction of the corporation arising during the S 
period (as defined in section 1368(e)(2)); and
    (3) The 120-day period beginning on the date of a determination that 
the corporation's election under section 1362(a) had terminated for a 
previous taxable year.
    (b) Special rules for post-termination transition period. Pursuant 
to section 1377(b)(1) and paragraph (a)(1) of this section, a post-
termination transition period arises the day after the last day that an 
S corporation was in existence if a C corporation acquires the assets of 
the S corporation in a transaction to which section 381(a)(2) applies. 
However, if an S corporation acquires the assets of another S 
corporation in a transaction to which section 381(a)(2) applies, a post-
termination transition period does not arise. (See Sec. 1.1368-2(d)(2) 
for the treatment of the acquisition of the assets of an S corporation 
by another S corporation in a transaction to which section 381(a)(2) 
applies.) The special treatment under section 1371(e)(1) of 
distributions of money by a corporation with respect to its stock during 
the post-termination transition period is available only to those 
shareholders who were shareholders in the S corporation at the time of 
the termination.
    (c) Determination defined. For purposes of section 1377(b)(1) and 
paragraph (a) of this section, the term determination means--
    (1) A determination as defined in section 1313(a);
    (2) A written agreement between the corporation and the Commissioner 
(including a statement acknowledging that the corporation's election to 
be an S corporation terminated under section 1362(d)) that the 
corporation failed to qualify as an S corporation;
    (3) For a corporation subject to the audit and assessment provisions 
of subchapter C of chapter 63 of subtitle A of the Code, the expiration 
of the period

[[Page 782]]

specified in section 6226 for filing a petition for readjustment of a 
final S corporation administrative adjustment finding that the 
corporation failed to qualify as an S corporation, provided that no 
petition was timely filed before the expiration of the period; and
    (4) For a corporation not subject to the audit and assessment 
provisions of subchapter C of chapter 63 of subtitle A of the Code, the 
expiration of the period for filing a petition under section 6213 for 
the shareholder's taxable year for which the Commissioner has made a 
finding that the corporation failed to qualify as an S corporation, 
provided that no petition was timely filed before the expiration of the 
period.
    (d) Date a determination becomes effective--(1) Determination under 
section 1313(a). A determination under paragraph (c)(1) of this section 
becomes effective on the date prescribed in section 1313 and the 
regulations thereunder.
    (2) Written agreement. A determination under paragraph (c)(2) of 
this section becomes effective when it is signed by the district 
director having jurisdiction over the corporation (or by another Service 
official to whom authority to sign the agreement is delegated) and by an 
officer of the corporation authorized to sign on its behalf. Neither the 
request for a written agreement nor the terms of the written agreement 
suspend the running of any statute of limitations.
    (3) Implied agreement. A determination under paragraph (c) (3) or 
(4) of this section becomes effective on the day after the date of 
expiration of the period specified under section 6226 or 6213, 
respectively.

[T.D. 8696, 61 FR 67457, Dec. 23, 1996]