Cal. Rev. & Tax. Code § 23806

# (a)

Section 1371(a) of the Internal Revenue Code, relating to application of Subchapter C rules, is modified to provide that, notwithstanding subdivisions (a) and (e) of Sections 17024.5 and 23051.5, any election by an “S corporation” or its shareholders under Section 338 of the Internal Revenue Code, relating to certain stock purchases treated as asset acquisitions, for federal purposes shall be treated as an election for purposes of this part and a separate election under paragraph (3) of subdivision (e) of Section 17024.5 or 23051.5 shall not be allowed.

# (b)

No election under Section 338 of the Internal Revenue Code, relating to certain stock purchases treated as asset acquisitions, shall be allowed for state purposes unless the “S corporation” or its shareholders made a valid election for federal purposes under Section 338 of the Internal Revenue Code.

# (c)

Section 1371(d) of the Internal Revenue Code shall not apply.

# (d)

(1)Subdivisions (a) and (b) shall apply to any transaction occurring on or after January 1, 1998, in a taxable year beginning on or after January 1, 1997.

(2)Subdivision (c) shall apply to taxable years beginning on or after January 1, 1997.

# (e)

Section 1371(f) of the Internal Revenue Code, relating to cash distributions following post-termination transition period, shall not apply.