(a)(1) Except as provided in subsection (b), for purposes of this article, the term "accumulated adjustments account" means an account of the Alabama S corporation which is adjusted for the S period in a manner similar to the adjustments under Section 40-18-164 hereof including subdivision (4) of subsection (c), except that no adjustment shall be made for income and related expenses which are exempt from tax under this chapter and the phrase "but not below zero" shall be disregarded in Section 40-18-164(c)(2)a.

(2) In the case of any redemption which is treated as an exchange under Section 40-18-36, the adjustment in the accumulated adjustments account shall be an amount which bears the same ratio to the balance in the account as the number of shares redeemed in such redemption bears to the number of shares of stock in the corporation immediately before the redemption.

(3) In applying this section to distributions during any taxable year, the amount of the accumulated adjustments account as of the close of the taxable year shall be determined without regard to any net negative adjustment for the taxable year. The term "net negative adjustment" means, with respect to any taxable year, the excess, if any, of the reductions in the account for the taxable year, other than for distributions, over the increases in such account for the taxable year.

(4) For purposes of this article, the term "S period" means the most recent continuous period during which the corporation has been an Alabama S corporation. The period shall not include any taxable year beginning before January 1, 1985.

(b) An Alabama S corporation may, with the consent of all of its affected shareholders, elect to have subdivision (1) of subsection (c) of Section 40-18-165 not apply to all distributions made during the taxable year for which the election is made. For purposes of this subsection, the term "affected shareholder" means any shareholder to whom a distribution is made by the Alabama S corporation during the taxable year.