(a) Each shareholder of a Pennsylvania S corporation shall take into income such shareholder's pro rata share of the income or loss in each applicable class of income received by the corporation for its taxable year ending within or with the shareholder's taxable year.

(b) Each shareholder's pro rata share of any item for any taxable year shall be the sum of the amounts determined with respect to the shareholder by assigning an equal portion of all items to each day of the taxable year and then by dividing that portion pro rata among the shares outstanding on such day.

(c) The character of any item included in the shareholder's pro rata share shall be determined as if such item were realized directly by the shareholder from the source from which it was realized by the corporation or incurred in the same manner as incurred by the corporation.

(d) With respect to any deduction allowed pursuant to section 307.8(e),¹ any nonresident shareholder shall be allowed such deduction only to the extent that the previously disallowed deduction would have been considered a deduction related to income from sources within this Commonwealth, within the meaning of section 301(k),² during the taxable year when the deduction was disallowed.

(e) For all purposes of this article, a qualified Subchapter S subsidiary owned by a Pennsylvania S corporation shall not be treated as a separate corporation, and all assets, liabilities and items of income, deduction and credit of such qualified Subchapter S subsidiary shall be treated as assets, liabilities and items of income, deduction and credit of the parent Pennsylvania S corporation.