QUALIFIED PENSION, ETC., PLANS OF SMALL BUSINESS CORPORATIONS.

SEC. 531. QUALIFIED PENSION, ETC., PLANS OF SMALL BUSINESS CORPORATIONS. (a) In General.—Subchapter S of chapter 1 (relating to election of certain small business corporations as to taxable status) is amended by adding at the end thereof the following new section: “SEC. 1379. CERTAIN QUALIFIED PENSION, ETC., PLANS. “(a) Additional Requirement for Qualification of Stock Bonus or Profit-Sharing Plans.—A trust forming part of a stock bonus or profit-sharing plan which provides contributions or benefits for employees some or all of whom are shareholder-employees shall not constitute a qualified trust under section 401 (relating to qualified pension, profit-sharing, and stock bonus plans) unless the plan of which such trust is a part provides that forfeitures attributable to contributions deductible under section 404(a)(3) for any taxable year (beginning after December 31, 1970) of the employer with respect to which 83 Stat. 655 it is an electing small business corporation may not inure to the benefit of any individual who is a shareholder-employee for such taxable year. A plan shall be considered as satisfying the requirement of this subsection for the period beginning with the first day of a taxable year and ending with the 15th day of the third month following the close of such taxable year, if all the provisions of the plan which are necessary to satisfy this requirement are in effect by the end of such period and have been made effective for all purposes with respect to the whole of such period. “(b) Taxability of Shareholders-Employee Beneficiaries.— “(1) Inclusion of excess contributions in gross income.—Notwithstanding the provisions of section 402 (relating to taxability of beneficiary of employees’ trust), section 403 (relating to taxation of employee annuities), or section 405(d) (relating to taxability of beneficiaries under qualified bond purchase plans), an individual who is a shareholder-employee of an electing small business corporation shall include in gross income, for his taxable year in which or with which the taxable year of the corporation ends, the excess of the amount of contributions paid on his behalf which is deductible under section 404(a)(1), (2), or (3) by the corporation for its taxable year over the lesser of— “(A) 10 percent of the compensation received or accrued by him from such corporation during its taxable year, or “(B) $2,500. “(2) Treatment of amounts included in gross income.—Any amount included in the gross income of a shareholder-employee under paragraph (1) shall be treated as consideration for the contract contributed by the shareholder-employee for purposes of section 72 (relating to annuities). “(3) Deduction for amounts not received as benefits.—If— “(A) amounts are included in the gross income of an individual under paragraph (1), and “(B) the rights of such individual (or his beneficiaries) under the plan terminate before payments under the plan which are excluded from gross income equal the amounts included in gross income under paragraph (1), then there shall be allowed as a deduction, for the taxable year in which such rights terminate, an amount equal to the excess of the amounts included in gross income under paragraph (1) over such payments. “(c) Carryover of Amounts Deductible.—No amount deductible shall be carried forward under the second sentence of section 404(a)(3)(A) (relating to limits on deductible contributions under stock bonus and profit-sharing trusts) to a taxable year of a corporation with respect to which it is not an electing small business corporation from a taxable year (beginning after December 31, 1970) with respect to which it is an electing small business corporation. “(d) Shareholder-Employee.—For purposes of this section, the term ‘shareholder-employee’ means an employee or officer of an electing small business corporation who owns (or is considered as owning within the meaning of section 318(a)(1), on any day during the taxable year of such corporation, more than 5 percent of the outstanding stock of the corporation.” (b) Conforming Amendment.—Section 62 (relating to adjusted gross income defined) is amended by inserting after paragraph (8) the following new paragraph: “(9) Pension, etc., plans of electing small business corporations.—The deduction allowed by section 1379(b)(3).” 83 Stat. 656 (c) Clerical Amendment.—The table of sections for subchapter S of chapter 1 is amended by adding at the end thereof the following new item: “Sec. 1379. Certain qualified pensions, etc., plans.” (d) Effective Date.—The amendments made by this section shall apply with respect to taxable years of electing small business corporations beginning after December 31, 1970.