§235-124 Basis and adjustments. (a) The initial basis of a resident shareholder in the stock of an S corporation and in any indebtedness of the corporation owed to the shareholder shall be determined in the manner provided under the Internal Revenue Code. The initial basis shall be determined as of the last to occur of the date (which may be before taxable years beginning after December 31, 1989) on which:

(1) The shareholder last became a resident of this State;

(2) The shareholder acquired the stock or the indebtedness of the corporation; or

(3) The corporation became an S corporation.

(b) The initial basis of a resident shareholder in the stock and indebtedness of an S corporation shall be adjusted after the date specified in subsection (a) in the manner and to the extent required by section 1011 of the Internal Revenue Code except that, with respect to any taxable period during which the shareholder was a resident of this State:

(1) Any modification made (other than for income exempt from federal or this State's taxation) pursuant to section 235-123 shall be taken into account; and

(2) Any adjustments made pursuant to section 1367 of the Internal Revenue Code for a taxable period during which this State did not measure S corporation shareholder income by reference to the corporation's income shall not be taken into account.

(c) The initial basis of a nonresident shareholder in the stock of an S corporation and in any indebtedness of the corporation to the shareholder shall be zero. The initial basis shall be determined as of the last to occur of the date (which may be before taxable years beginning after December 31, 1989) on which:

(1) The shareholder acquired the stock or the indebtedness of the corporation;

(2) The corporation became an S corporation; or

(3) The shareholder last became a nonresident of this State.

(d) The initial basis of a nonresident shareholder in the stock and indebtedness of an S corporation shall be adjusted after the date specified in subsection (c) in the manner provided in section 1367 of the Internal Revenue Code, except that adjustments to basis shall be limited to the income attributable to the State taken into account by the shareholder pursuant to section 235-122(c). In computing income attributable to the State for purposes of the preceding sentence, any modification made for income exempt from federal or this State's taxation shall not be taken into account.

(e) The basis of a resident shareholder in the stock of a corporation shall be reduced by the amount allowed as a loss or deduction pursuant to section 235-125(d).

(f) The basis of a resident shareholder in the stock of a corporation shall be reduced by the amount of any cash distribution which is not taxable to the shareholder as a result of the application of section 235-127(b).

(g) For purposes of this section, a shareholder shall be considered to have acquired stock or indebtedness received by gift at the time the donor acquired the stock or indebtedness, if the donor was a resident of this State at the time of the gift. [L 1990, c 16, pt of §1]

Revision Note

"Taxable years beginning after December 31, 1989" substituted for other original language pursuant to §23G-15.