26 U.S.C. § 1375 — Tax imposed when passive investment income of corporation having accumulated earnings and profits exceeds 25 percent of gross receipts

(a) General rule. If an S corporation has accumulated earnings and profits at year-end and more than 25 percent of its gross receipts are passive investment income, tax applies to its income for that year. Compute the tax by multiplying excess net passive income by the highest rate in section 11(b). (b) Definitions. (1)(A) Except for (B), “excess net passive income” means net passive income multiplied by the fraction whose numerator is passive investment income above 25 percent of gross receipts and whose denominator is passive investment income. (B) It cannot exceed taxable income under section 63(a), ignoring part VIII subchapter B deductions other than section 248 and ignoring section 172. (2) “Net passive income” means passive investment income minus directly connected deductions allowed by this chapter, excluding section 172 and part VIII subchapter B deductions. (3) “Passive investment income” and “gross receipts” have the meanings given in section 1362(d)(3). (4) Despite (3), exclude recognized built-in gains and losses during the section 1374 recognition period; related terms have section 1374 meanings. (c) Credits. No part IV subchapter A credit other than section 34 may offset this tax. (d) Waiver. The Secretary may waive the tax if the corporation proves it reasonably believed in good faith that it had no accumulated earnings and profits at year-end and distributed those earnings and profits within a reasonable time after discovering that it did.