16. a. Subject to subsection c. of this section, a distribution made by an S corporation with respect to its stock to a resident shareholder shall be taken into account by the shareholder for purposes of the “New Jersey Gross Income Tax Act,” N.J.S. 54A:1-1 et seq., to the extent that the distribution is treated as a dividend or as gain from the sale or exchange of property in the manner provided by section 1368 of the federal Internal Revenue Code of 1986, 26 U.S.C. § 1368.

b. Subject to subsection c. of this section, a distribution of money made by a corporation with respect to its stock to a resident shareholder during a post-termination transition period shall not be taken into account by the shareholder for purposes of the “New Jersey Gross Income Tax Act,” N.J.S. 54A:1-1 et seq., to the extent the distribution is applied against and reduces the adjusted basis of the stock of the shareholder in the manner provided by section 1371(e) of the federal Internal Revenue Code of 1986, 26 U.S.C. § 1371.

c. In applying sections 1368 and 1371(e) of the federal Internal Revenue Code of 1986, 26 U.S.C. § 1368 and 1371, to any distribution referred to in subsection a. or b. of this section:

(1) the term “adjusted basis of the stock” means the shareholder’s adjusted basis in the stock of the S corporation, as determined under section 13 of P.L.1993, c.173 (C. 54A:5-11); and

(2) the term “accumulated adjustments account” means an amount that is equal to, and adjusted in the same manner as, the S corporation’s accumulated adjustments account defined in section 1368(e)(1)(A) of the federal Internal Revenue Code of 1986, 26 U.S.C. § 1368, except that any modifications required to be made pursuant to the definition of S corporation income shall be taken into account.

L.1993,c.173,s.16.