Ala. Code § 40-18-174 (1975) Tax Imposed On Certain Built-In Gains

• Library: Alabama Statutes
• Edition: 2023
• Currency: Current with legislation from the 2023 Regular and Special Sessions.
• Year: 2023
• Citation: Ala. Code § 40-18-174 (1975)

(a) If for any taxable year beginning in the recognition period an Alabama S corporation has a net recognized built-in gain, there is hereby imposed a tax (computed under subsection (b)) on the income of such corporation for such taxable year.

(b)

(1) The amount of the tax imposed by subsection (a) shall be computed by multiplying five percent by the net recognized built-in gain of the Alabama S corporation for the taxable year.

(2) Notwithstanding Section <codecitation statecd="AL" sessionyear="2023" datatype="S" title="40" catchline=""Carryforward" and "carryback" provisions">40-18-168</codecitation>, any net operating loss carryforward which would be deductible except for Section <codecitation statecd="AL" sessionyear="2023" datatype="S" title="40" catchline=""Carryforward" and "carryback" provisions">40-18-168</codecitation> and which arose in a taxable year for which the corporation was not an Alabama S corporation, shall be allowed as a deduction against the net recognized built-in gain of the Alabama S corporation for the taxable year. For purposes of determining the amount of any such loss which may be carried to subsequent taxable years, the net recognized built-in gain shall be treated as taxable income.</subsect></subsect>

(c) The following limitations shall apply:

(1) Subsection (a) shall not apply to any corporation that has had in effect an election to be treated as an S corporation under Subchapter S of the U.S. Internal Revenue Code, Title 26, U.S.C., as in effect from time to time or as recodified, for each of its taxable years. Except as provided in regulations, an Alabama S corporation and any predecessor corporation shall be treated as one corporation for purposes of the preceding sentence.

(2) The amount of the net recognized built-in gain taken into account under this section for any taxable year shall not exceed the excess (if any) of the net unrealized built-in gain over the net recognized built-in gain for prior taxable years beginning in the recognition period.

(d) For purposes of this section:

(1) The term "net unrealized built-in gain" means the amount (if any) by which the fair market value of the assets of the corporation exceeds the aggregate adjusted basis of such assets as of the beginning of its first taxable year for which it is treated as an Alabama S corporation.

(2)

a. The term "net recognized built-in gain" means, with respect to any taxable year in the recognition period, the lesser of (i) the amount which would be taxable income of the Alabama S corporation for such taxable year if (except as provided in subsection (b)(2)) only recognized built-in gains and recognized built-in losses were taken into account, or (ii) such corporation's taxable income for such taxable year (determined as provided in subsection (b)(1) of Section 40-18-175).