§ 1375. Tax imposed when passive investment income of corporation having accumulated earnings and profits exceeds 25 percent of gross receipts
(b)
Definitions
For purposes of this section—
(1)
Excess net passive income
(A)
In general
Except as provided in subparagraph (B), the term “excess net passive income” means an amount which bears the same ratio to the net passive income for the taxable year as—
(B)
Limitation
The amount of the excess net passive income for any taxable year shall not exceed the amount of the corporation’s taxable income for such taxable year as determined under section
63
(a)—
(i)
without regard to the deductions allowed by part VIII of subchapter B (other than the deduction allowed by section
248, relating to organization expenditures), and
(2)
Net passive income
The term “net passive income” means—
(B)
the deductions allowable under this chapter which are directly connected with the production of such income (other than deductions allowable under section
172 and part VIII of subchapter B).
(4)
Coordination with section
1374
Notwithstanding paragraph (3), the amount of passive investment income shall be determined by not taking into account any recognized built-in gain or loss of the S corporation for any taxable year in the recognition period. Terms used in the preceding sentence shall have the same respective meanings as when used in section
1374.
(c)
Credits not allowable
No credit shall be allowed under part IV of subchapter A of this chapter (other than section
34) against the tax imposed by subsection (a).
(d)
Waiver of tax in certain cases
If the S corporation establishes to the satisfaction of the Secretary that—
(1)
it determined in good faith that it had no accumulated earnings and profits at the close of a taxable year, and
(2)
during a reasonable period of time after it was determined that it did have accumulated earnings and profits at the close of such taxable year such earnings and profits were distributed,
the Secretary may waive the tax imposed by subsection (a) for such taxable year.