Internal Revenue Code · 26 U.S.C.
§ 1366. Pass-thru of items to shareholders
Official text, no changes From the Office of the Law Revision Counsel, release point 119-121 (current through Public Law 119-121 (October 9, 2026)). Compare it with the official text at uscode.house.gov (external site).
Cite as 26 U.S.C. § 1366
At a glance
Read from the text, the source credit and the official notes. Not part of the law.
- Status
- In force
- Added
- October 19, 1982 by Pub. L. 97–354
- Last amended
- March 23, 2018 by Pub. L. 115–141
- Amendments
- 8 dated changes in the source credit
- Length
- 6 subsections · 1,151 words · about 5 min to read
- Defines
- 1 term
- Cross-references
- cites 6; cited by 13 Code sections and 35 other regulations
- Regulations
- 6 issued under this section
For purposes of this subchapter, the term “nonseparately computed income or loss” means gross income minus the deductions allowed to the corporation under this chapter, determined by excluding all items described in paragraph (1)(A).
The character of any item included in a shareholder’s pro rata share under paragraph (1) of subsection (a) shall be determined as if such item were realized directly from the source from which realized by the corporation, or incurred in the same manner as incurred by the corporation.
In any case where it is necessary to determine the gross income of a shareholder for purposes of this title, such gross income shall include the shareholder’s pro rata share of the gross income of the corporation.
Except as provided in subparagraph (B), any loss or deduction which is disallowed for any taxable year by reason of paragraph (1) shall be treated as incurred by the corporation in the succeeding taxable year with respect to that shareholder.
In the case of any transfer described in section 1041(a) of stock of an S corporation, any loss or deduction described in subparagraph (A) with respect such stock shall be treated as incurred by the corporation in the succeeding taxable year with respect to the transferee.
If for the last taxable year of a corporation for which it was an S corporation a loss or deduction was disallowed by reason of paragraph (1), such loss or deduction shall be treated as incurred by the shareholder on the last day of any post-termination transition period.
The aggregate amount of losses and deductions taken into account by a shareholder under subparagraph (A) shall not exceed the adjusted basis of the shareholder’s stock in the corporation (determined at the close of the last day of the post-termination transition period and without regard to this paragraph).
The shareholder’s basis in the stock of the corporation shall be reduced by the amount allowed as a deduction by reason of this paragraph.
To the extent that any increase in adjusted basis described in subparagraph (B) would have increased the shareholder’s amount at risk under section 465 if such increase had occurred on the day preceding the commencement of the post-termination transition period, rules similar to the rules described in subparagraphs (A) through (C) shall apply to any losses disallowed by reason of section 465(a).
If an individual who is a member of the family (within the meaning of section 704(e)(2) of one or more shareholders of an S corporation renders services for the corporation or furnishes capital to the corporation without receiving reasonable compensation therefor, the Secretary shall make such adjustments in the items taken into account by such individual and such shareholders as may be necessary in order to reflect the value of such services or capital.
Subsection (a) shall not apply with respect to any credit allowable under section 34 (relating to certain uses of gasoline and special fuels).
If any tax is imposed under section 1374 for any taxable year on an S corporation, for purposes of subsection (a), the amount so imposed shall be treated as a loss sustained by the S corporation during such taxable year. The character of such loss shall be determined by allocating the loss proportionately among the recognized built-in gains giving rise to such tax.
(Added Pub. L. 97–354, § 2, Oct. 19, 1982, 96 Stat. 1677; amended Pub. L. 98–369, div. A, title IV, § 474(r)(26), title VII, § 735(c)(16), July 18, 1984, 98 Stat. 844, 985; Pub. L. 99–514, title VI, § 632(c)(2), title VII, § 701(e)(4)(K), Oct. 22, 1986, 100 Stat. 2277, 2343; Pub. L. 100–647, title I, § 1006(f)(5)(E), Nov. 10, 1988, 102 Stat. 3406; Pub. L. 101–239, title VII, § 7811(c)(7), Dec. 19, 1989, 103 Stat. 2407; Pub. L. 104–188, title I, §§ 1302(e), 1307(c)(3)(A), 1309(a)(1), 1312, Aug. 20, 1996, 110 Stat. 1779, 1782, 1783, 1784; Pub. L. 108–357, title II, § 235(a), Oct. 22, 2004, 118 Stat. 1435; Pub. L. 110–172, § 3(b), Dec. 29, 2007, 121 Stat. 2474; Pub. L. 115–141, div. U, title IV, § 401(a)(192), Mar. 23, 2018, 132 Stat. 1193.)
Terms defined here
Where the text says “the term … means”. Select a term to jump to its definition.
Regulations under this section
Treasury regulations (26 CFR) issued under § 1366
- § 1.1366-0 Table of contents.
- § 1.1366-1 Shareholder's share of items of an S corporation.
- § 1.1366-2 Limitations on deduction of passthrough items of an S corporation to its shareholders.
- § 1.1366-3 Treatment of family groups.
- § 1.1366-4 Special rules limiting the passthrough of certain items of an S corporation to its shareholders.
- § 1.1366-5 Effective/applicability date.
From Carry Forward Learning, not part of the law
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Cross-references
Computed from the citations in the text of Title 26 and 26 CFR.
This section cites 6 other sections
- § 702(a) Income and credits of partner
- § 1367(a) Adjustments to basis of stock of shareholders, etc.
- § 465 Deductions limited to amount at risk
- § 34 Certain uses of gasoline and special fuels
- § 1374 Tax imposed on certain built-in gains
- § 1375 Tax imposed when passive investment income of corporation having accumulated earnings and profits exceeds 25 percent of gross receipts
Cited by 13 Code sections
- § 48D(d)(2)(A)(i)(III) Advanced manufacturing investment credit
- § 59(h) Other definitions and special rules
- § 108(d)(7)(A) Income from discharge of indebtedness
- § 453B(h)(2) Gain or loss on disposition of installment obligations
- § 512(e)(1)(B)(i) Unrelated business taxable income
- § 641(c)(2)(C)(i) Imposition of tax
- § 1362(e)(2)(A)(i) Election; revocation; termination
- § 1363(b)(1) Effect of election on corporation
- § 1367(a)(1)(A) Adjustments to basis of stock of shareholders, etc.
- § 1377(b)(3)(A) Definitions and special rule
- § 6417(c)(1)(C) Elective payment of applicable credits
- § 6418(c)(1)(A) Transfer of certain credits
- § 7519(d)(2)(B) Required payments for entities electing not to have required taxable year
Cited in 35 regulations not issued under it
- § 1.28-1 Credit for clinical testing expenses for certain drugs for rare diseases or conditions.
- § 1.30D-4 Special rules.
- § 1.41-7 Special rules.
- § 1.48-14 Rules applicable to energy property.
- § 1.48-15 Election to treat clean hydrogen production facility as energy property.
- § 1.67-3T Allocation of expenses by real estate mortgage investment conduits (temporary).
- § 1.108-7 Reduction of attributes.
- § 1.108(i)-2 Application of section 108(i) to partnerships and S corporations.
- § 1.163(j)-6 Application of the section 163(j) limitation to partnerships and subchapter S corporations.
- § 1.179-2 Limitations on amount subject to section 179 election.
- § 1.197-2 Amortization of goodwill and certain other intangibles.
- § 1.336-2 Availability, mechanics, and consequences of section 336(e) election.
- § 1.338(h)(10)-1 Deemed asset sale and liquidation.
- § 1.441-2 Election of taxable year consisting of 52-53 weeks.
- § 1.444-2T Tiered structure (temporary).
- § 1.469-0 Table of contents.
- § 1.469-1T General rules (temporary).
- § 1.469-2T Passive activity loss (temporary).
- § 1.469-7 Treatment of self-charged items of interest income and deduction.
- § 1.641(c)-0 Table of contents.
- § 1.641(c)-1 Electing small business trust.
- § 1.1254-4 Special rules for S corporations and their shareholders.
- § 1.1361-1 S corporation defined.
- § 1.1362-3 Treatment of S termination year.
Show 11 more
- § 1.1367-1 Adjustments to basis of shareholder's stock in an S corporation.
- § 1.1368-2 Accumulated adjustments account (AAA).
- § 1.1368-3 Examples.
- § 1.1375-1 Tax imposed when passive investment income of corporation having subchapter C earnings and profits exceed 25 percent of gross receipts.
- § 1.1377-1 Pro rata share.
- § 1.1374-1A Tax imposed on certain capital gains.
- § 1.1400Z2(b)-1 Inclusion of gains that have been deferred under section 1400Z-2(a).
- § 1.1411-6 Income on investment of working capital subject to tax.
- § 1.6418-3 Additional rules for partnerships and S corporations.
- § 1.7519-1T Required payments for entities electing not to have required year (temporary).
- § 301.9100-7T Time and manner of making certain elections under the Tax Reform Act of 1986.
Amendment history
From the source credit and the official notes, newest first.
- Amended by Pub. L. 115–141Parts changed in 2018: (e)
- Amended by Pub. L. 110–172Parts changed in 2007: (d)(4)
- Amended by Pub. L. 108–357Parts changed in 2004: (d)(2)
- Amended by Pub. L. 104–188Parts changed in 1996: (a)(1) (d)(1)(A) (d)(3)(D) (g)
- Amended by Pub. L. 101–239Parts changed in 1989: (f)(2)
- Amended by Pub. L. 100–647Parts changed in 1988: (f)(2)
- Amended by Pub. L. 99–514Parts changed in 1986: (f)(2)
- Amended by Pub. L. 98–369Parts changed in 1984: (f) (f)(1)
- Added by Pub. L. 97–354
Where it sits in the Code
- Subtitle A Income Taxes
- Chapter 1 NORMAL TAXES AND SURTAXES
- Subchapter S Tax Treatment of S Corporations and Their Shareholders
- Part II TAX TREATMENT OF SHAREHOLDERS
Nearby sections
- § 1366 Pass-thru of items to shareholders
- § 1367 Adjustments to basis of stock of shareholders, etc.
- § 1368 Distributions
Official notes
Show the Law Revision Counsel's notes (amendments, effective dates)
Editorial Notes
Amendments
2018—Subsec. (e). Pub. L. 115–141 substituted “section 704(e)(2)” for “section 704(e)(3)”.
2007—Subsec. (d)(4). Pub. L. 110–172 added par. (4).
2004—Subsec. (d)(2). Pub. L. 108–357 reenacted heading without change and amended text of par. (2) generally. Prior to amendment, text read as follows: “Any loss or deduction which is disallowed for any taxable year by reason of paragraph (1) shall be treated as incurred by the corporation in the succeeding taxable year with respect to that shareholder.”
1996—Subsec. (a)(1). Pub. L. 104–188, § 1302(e), inserted “, or of a trust or estate which terminates,” after “who dies” in introductory provisions.
Subsec. (d)(1)(A). Pub. L. 104–188, § 1309(a)(1), substituted “paragraphs (1) and (2)(A)” for “paragraph (1)”.
Subsec. (d)(3)(D). Pub. L. 104–188, § 1312, added subpar. (D).
Subsec. (g). Pub. L. 104–188, § 1307(c)(3)(A), struck out subsec. (g) which provided a cross reference to subchapter D of chapter 63 of this title.
1989—Subsec. (f)(2). Pub. L. 101–239 substituted “Treatment of tax imposed on built-in gains” for “Reduction in pass-thru for tax imposed on built-in gains” in heading and amended text generally. Prior to amendment, text read as follows: “If any tax is imposed under section 1374 for any taxable year on an S corporation, for purposes of subsection (a), the amount of each recognized built-in gain (within the meaning of section 1374) for such taxable year shall be reduced by its proportionate share of such tax.”
1988—Subsec. (f)(2). Pub. L. 100–647 substituted “within the meaning of section 1374” for “as defined in section 1374(d)(2)”.
1986—Subsec. (f)(2). Pub. L. 99–514, § 632(c)(2), amended par. (2) generally. Prior to amendment, par. (2), reduction in pass-thru for tax imposed on capital gain, read as follows: “If any tax is imposed under section 1374 for any taxable year on an S corporation, for purposes of subsection (a)—
“(A) the amount of the corporation’s long-term capital gains for the taxable year shall be reduced by the amount of such tax, and
“(B) if the amount of such tax exceeds the amount of such long-term capital gains, the corporation’s gains from sales or exchanges of property described in section 1231 shall be reduced by the amount of such excess.
For purposes of the preceding sentence, the term ‘long-term capital gain’ shall not include any gain from the sale or exchange of property described in section 1231.”
Pub. L. 99–514, § 701(e)(4)(K), struck out “56 or” before “1374”.
1984—Subsec. (f). Pub. L. 98–369, § 474(r)(26), substituted “section 34” for “section 39” in heading and text.
Subsec. (f)(1). Pub. L. 98–369, § 735(c)(16), substituted “and special fuels” for “, special fuels, and lubricating oil”.
Statutory Notes and Related Subsidiaries
Effective Date of 2007 Amendment
Amendment by Pub. L. 110–172 effective as if included in the provisions of the Pension Protection Act of 2006, Pub. L. 109–280, to which such amendment relates, see section 3(j) of Pub. L. 110–172, set out as a note under section 170 of this title.
Effective Date of 2004 Amendment
Pub. L. 108–357, title II, § 235(b), Oct. 22, 2004, 118 Stat. 1435, as amended by Pub. L. 109–135, title IV, § 403(c), Dec. 21, 2005, 119 Stat. 2620, provided that: “The amendment made by this section [amending this section] shall apply to transfers after December 31, 2004.”
Effective Date of 1996 Amendment
Amendment by Pub. L. 104–188 applicable to taxable years beginning after Dec. 31, 1996, see section 1317(a) of Pub. L. 104–188, set out as a note under section 641 of this title.
Effective Date of 1989 Amendment
Amendment by Pub. L. 101–239 effective, except as otherwise provided, as if included in the provision of the Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100–647, to which such amendment relates, see section 7817 of Pub. L. 101–239, set out as a note under section 1 of this title.
Effective Date of 1988 Amendment
Amendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title.
Effective Date of 1986 Amendment
Amendment by section 632(c)(2) of Pub. L. 99–514 applicable to taxable years beginning after Dec. 31, 1986, but only in cases where the return for the taxable year is filed pursuant to an S election made after Dec. 31, 1986, with exceptions and special and transitional rules, see section 633 of Pub. L. 99–514, as amended, set out as an Effective Date note under section 336 of this title.
Amendment by section 701(e)(4)(K) of Pub. L. 99–514 applicable to taxable years beginning after Dec. 31, 1986, with certain exceptions and qualifications, see section 701(f) of Pub. L. 99–514, set out as an Effective Date note under section 55 of this title.
Effective Date of 1984 Amendment
Amendment by section 474(r)(26) of Pub. L. 98–369 applicable to taxable years beginning after Dec. 31, 1983, and to carrybacks from such years, see section 475(a) of Pub. L. 98–369, set out as a note under section 21 of this title.
Amendment by section 735(c)(16) of Pub. L. 98–369 effective, except as otherwise provided, as if included in the provisions of the Highway Revenue Act of 1982, title V of Pub. L. 97–424, to which such amendment relates, see section 736 of Pub. L. 98–369, set out as a note under section 4051 of this title.
Effective Date
Section applicable to taxable years beginning after Dec. 31, 1982, except that in the case of a taxable year beginning during 1982, subsec. (f)(3) of this section and sections 1362(d)(3) and 1375 of this title shall apply, and section 1372(e)(5) of this title as in effect on the day before Oct. 19, 1982, shall not apply, see section 6(a), (b)(3) of Pub. L. 97–354, set out as a note under section 1361 of this title.
Applicability of Certain Amendments by Pub. L. 99–514 in Relation to Treaty Obligations of United States
For applicability of amendment by section 701(e)(4)(K) of Pub. L. 99–514 notwithstanding any treaty obligation of the United States in effect on Oct. 22, 1986, with provision that for such purposes any amendment by title I of Pub. L. 100–647 be treated as if it had been included in the provision of Pub. L. 99–514 to which such amendment relates, see section 1012(aa)(2), (4) of Pub. L. 100–647, set out as a note under section 861 of this title.