EXPANSION OF POST-TERMINATION TRANSITION PERIOD.

SEC. 1307. EXPANSION OF POST-TERMINATION TRANSITION PERIOD. (a) In General.— Paragraph (1) of section 1377(b) (relating to post-termination transition period) is amended by striking “and” at the end of subparagraph (A), by redesignating subparagraph (B) as subparagraph (C), and by inserting after subparagraph (A) the following new subparagraph: “(B) 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”. (b) Determination Defined.— Paragraph (2) of section 1377(b) is amended by striking subparagraphs (A) and (B), by redesignating subparagraph (C) as subparagraph (B), and by inserting before subparagraph (B) (as so redesignated) the following new subparagraph: 110 STAT. 1781 “(A) a determination as defined in section 1313(a), or”. (c) Repeal of Special Audit Provisions for Subchapters Items.— (1) General rule.— Subchapter D of chapter 63 (relating to tax treatment of subchapter S items) is hereby repealed. (2) Consistent treatment required.— Section 6037 (relating to return of S corporation) is amended by adding at the end the following new subsection: “(c) Shareholder’s Return Must Be Consistent With Corporate Return or Secretary Notified of Inconsistency.— “(1) In general.— A shareholder of an S corporation shall, on such shareholder’s return, treat a subchapter S item in a manner which is consistent with the treatment of such item on the corporate return. “(2) Notification of inconsistent treatment.— “(A) In general.— In the case of any subchapter S item, if— “(i) (I) the corporation has filed a return but the shareholder’s treatment on his return is (or may be) inconsistent with the treatment of the item on the corporate return, or “(II) the corporation has not filed a return, and “(ii) the shareholder files with the Secretary a statement identifying the inconsistency, paragraph (1) shall not apply to such item. “(B) Shareholder receiving incorrect information.— A shareholder shall be treated as having complied with clause (ii) of subparagraph (A) with respect to a subchapter S item if the shareholder— “(i) demonstrates to the satisfaction of the Secretary that the treatment of the subchapter S item on the shareholder’s return is consistent with the treatment of the item on the schedule furnished to the shareholder by the corporation, and “(ii) elects to have this paragraph apply with respect to that item. “(3) Effect of failure to notify.— In any case— “(A) described in subparagraph (A)(i)(I) of paragraph (2), and “(B) in which the shareholder does not comply with subparagraph (A)(ii) of paragraph (2), any adjustment required to make the treatment of the items by such shareholder consistent with the treatment of the items on the corporate return shall be treated as arising out of mathematical or clerical errors and assessed according to section 6213(b)(1). Paragraph (2) of section 6213(b) shall not apply to any assessment referred to in the preceding sentence. “(4) Subchapter s item.— For purposes of this subsection, the term ‘subchapter S item’ means any item of an S corporation to the extent that regulations prescribed by the Secretary provide that, for purposes of this subtitle, such item is more appropriately determined at the corporation level than at the shareholder level. 110 STAT. 1782 “(5) Addition to tax for failure to comply with section.— “For addition to tax in the case of a shareholder’s negligence in connection with, or disregard of, the requirements of this section, see part II of subchapter A of chapter 68.”. (3) Conforming amendments.— (A) Section 1366 is amended by striking subsection (g). (B) Subsection (b) of section 6233 is amended to read as follows: “(b) Similar Rules in Certain Cases.— If a partnership return is filed for any taxable year but it is determined that there is noentity forsuch taxable year, to the extent provided in regulations, rules similar to the rules of subsection (a) shall apply.”. (C) The table of subchapters for chapter 63 is amended by striking the item relating to subchapter D.