RULES RELATING TO INADVERTENT TERMINATIONS AND INVALID ELECTIONS.

SEC. 1305. RULES RELATING TO INADVERTENT TERMINATIONS AND INVALID ELECTIONS. (a) General Rule.— Subsection (f) of section 1362 (relating to inadvertent terminations) is amended to read as follows: “(f) Inadvertent Invalid Elections or Terminations.— If— “(1) an election under subsection (a) by any corporation— “(A) was not effective for the taxable year for which made (determined without regard to subsection (b)(2)) by reason of a failure to meet the requirements of section 1361(b) or to obtain shareholder consents, or “(B) was terminated under paragraph (2) or (3) of subsection (d), “(2) the Secretary determines that the circumstances resulting in such ineffectiveness or termination were inadvertent, “(3) no later than a reasonable period of time after discovery of the circumstances resulting in such ineffectiveness or termination, steps were taken— “(A) so that the corporation is a small business corporation, or “(B) to acquire the required shareholder consents, and “(4) the corporation, and each person who was a shareholder in the corporation at any time during the period specified pursuant to this subsection, agrees to make such adjustments (consistent with the treatment of the corporation as an S corporation) as may be required by the Secretary with respect to such period,110 STAT. 1780 then, notwithstanding the circumstances resulting in such ineffectiveness or termination, such corporation shall be treated as an S corporation during the period specified by the Secretary.”. (b) Late Elections, Etc.— Subsection (b) of section 1362 is amended by adding at the end the following new paragraph: “(5) Authority to treat late elections, etc., as timely.— If— “(A) an election under subsection (a) is made for any taxable year (determined without regard to paragraph (3)) after the date prescribed by this subsection for making such election for such taxable year or no such election is made for any taxable year, and “(B) the Secretary determines that there was reasonable cause for the failure to timely make such election, the Secretary may treat such an election as timely made for such taxable year (and paragraph (3) shall not apply).”. (c) Effective Date.— The amendments made by subsections (a) and (b) shall apply with respect to elections for taxable years beginning after December 31, 1982.