A BILL TO BE ENTITLED
AN ACT to make corporate income tax adjustments inapplicable to s corporations.
The General Assembly of North Carolina enacts:
SECTION 1.  G.S. 105‑131.2 reads as rewritten:
"§ 105‑131.2.  Adjustment and characterization of income.
(a)	Adjustment. – Each shareholder's pro rata share of an S Corporation's income is subject to the adjustments provided in G.S. 105‑134.6.
(b)	Repealed by Session Laws 1989, c. 728, s. 1.35.
(c)	Characterization of Income. – S Corporation items of income, loss, deduction, and credit taken into account by a shareholder pursuant to G.S. 105‑131.1(b) are characterized as though received or incurred by the S Corporation and not its shareholder."
SECTION 2.  G.S. 105‑134.6(a) reads as rewritten:
"(a)	S Corporations. – Each shareholder's pro rata share of an S Corporation's income is subject to the adjustments provided in this section."
SECTION 3.  G.S. 105‑134.6(c) is amended by adding a new subdivision to read:
…
(3a)	The amount by which a shareholder's share of S Corporation income is reduced under section 1366(f)(2) of the Code for the taxable year by the amount of built‑in gains tax imposed on the S Corporation under section 1374 of the Code.
…"
SECTION 4.  This act is effective for taxable years beginning on or after January 1, 2006.