2023 New Jersey Revised Statutes › Title 54A - New Jersey Gross Income Tax Act › Section 54A:5-11 - Initial basis of shareholder of S corporation stock

54A:5-11. Initial basis of shareholder of S corporation stock
13. a. A resident shareholder of S corporation stock held by the shareholder on the first day of the first taxable year following enactment of this section shall have an initial basis in the stock of that S corporation and any indebtedness of the S corporation equal to the basis of the stock determined as though the stock was stock of a corporation not an S corporation plus any indebtedness of the S corporation to the shareholder and shall be determined as of the first day of the first taxable year following enactment of this section.
b. A resident shareholder of S corporation stock to which subsection a. of this section does not apply shall have an initial basis in the stock of the S corporation and any indebtedness of the S corporation as determined pursuant to the federal Internal Revenue Code of 1986, determined as of the date that is the latest to occur of: the date on which the shareholder last became a resident of this State; the date on which the shareholder acquired the stock of the corporation; or the effective date of the corporation's most recent S election under the federal Internal Revenue Code of 1986.
c. The initial basis of a resident shareholder in the stock and indebtedness of an S corporation shall be adjusted after the date specified in subsections a. or b. of this section in the manner required by section 1011 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.1011, except that such adjustments shall be limited to that portion of S corporation income allocated to this State and S corporation income not allocated to this State that is included in the shareholder's pro rata share of S corporation income and except that, with respect to any taxable period during which the shareholder is a resident of this State:
(1) any modification made pursuant to the definition of S corporation income pursuant to section 12 of P.L.1993, c.173 (C.54A:5-10) other than those for income exempt from taxation by this State pursuant to paragraph (5) of subsection a. and subsection b. of that definition shall be taken into account; and
(2) any adjustments made pursuant to section 1367 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.1367, for a taxable period during which this State did not measure the income of a shareholder of an S corporation by reference to the S corporation's income shall not be taken into account.
d. A nonresident shareholder of S corporation stock shall have an initial basis in the stock of the S corporation and any indebtedness of the S corporation of zero as of the date that is the latest to occur of: the date on which the shareholder last became a nonresident of this State; the date on which the shareholder acquired the stock of the corporation; or the effective date of the corporation's most recent S election under the federal Internal Revenue Code of 1986.
e. 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 d. of this section as provided in section 1367 of the of the federal Internal Revenue Code of 1986, 26 U.S.C. s.1367, except that such adjustments shall be limited to that portion of S corporation income allocated to this State that is included in the shareholder's pro rata share of S corporation income. In computing S corporation income allocated to this State any modification made pursuant to the definition of S corporation income pursuant to section 12 of P.L.1993, c.173 (C.54A:5-10) for income exempt from taxation by this State pursuant to paragraph (5) of subsection a. and subsection b. of that definition shall not be taken into account.
f. The basis in the hands of a resident shareholder of an S corporation in stock of the S 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 16 of P.L.1993, c.173 (C.54A:5-14).
g. For purposes of this section, any person acquiring stock or indebtedness of an S corporation by gift shall be considered to have acquired the stock or indebtedness at the time the donor acquired the stock or indebtedness.
L.1993,c.173,s.13; amended 2022, c.133, s.23.