Generally, if a corporation converts from a C corporation to a subchapter S corporation, the corporation must hold its appreciated assets for at least 10 years or, otherwise, the corporation must pay taxes (which could be as high as 35%) on any built-in capital gains that occurred before the corporation converted to subchapter S status. The 10-year period is commonly referred to as the built-in gain holding period. The holding period starts from the first day of the first taxable year for which the corporation is an S corporation. For instance, if a corporation converted from a C corporation to an S corporation on July 14, 1996, then the 10-year holding period ends on July 13, 2006.
As a tax incentive, for years 2009 and 2010, Congress shortened the 10-year period to 7 years. For year 2011, the holding period was further shortened to 5 years. Without the new tax bill (H.R. 8), the shortened holding period would have expired, and reverted back to 10 years. As a tax incentive, the new tax bill extended the 5-year holding period for years 2012 and 2013.