CORPORATIONS USING APPRECIATED PROPERTY TO REDEEM THEIR OWN STOCK.

SEC. 905. CORPORATIONS USING APPRECIATED PROPERTY TO REDEEM THEIR OWN STOCK. (a) General Rule.—Section 311 (relating to taxability of corporation on distribution) is amended by adding at the end thereof the following new subsection: “(d) Appreciated Property Used To Redeem Stock.— “(1) In general.—If— “(A) a corporation distributes property (other than an obligation of such corporation) to a shareholder in a redemption (to which subpart A applies) of part or all of his stock in such corporation, and “(B) the fair market value of such property exceeds its adjusted basis (in the hands of the distributing corporation), then again shall be recognized to the distributing corporation in an amount equal to such excess as if the property distributed had been sold at the time of the distribution. Subsections (b) and (c) shall not apply to any distribution to which this subsection applies. “(2) Exceptions and limitations.—Paragraph (1) shall not apply to— “(A) a distribution in complete redemption of all of the stock of a shareholder who, at all times within the 12-month period ending on the date of such distribution, owns at least 10 percent in value of the outstanding stock of the distributing corporation, but only if the redemption qualifies under section 302(b)(3)(determined without the application of section 302(c)(2)(A)(ii)); “(B) a distribution of stock or an obligation of a corporation— “(i) which is engaged in at least one trade or business, “(ii) which has not received property constituting a substantial part of its assets from the distributing corporation, in a transaction to which section 351 applied or as a contribution to capital, within the 5-year period ending on the date of the distribution, and “(iii) at least 50 percent in value of the outstanding stock of which is owned by the distributing corporation at any time within the 9-year period ending one year before the date of the distribution; “(C) a distribution before December 1, 1974, of stock of a corporation substantially all of the assets of which the distributing corporation (or a corporation which is a member of the same affiliated group (as defined in section 1504(a)) as the distributing corporation) held on November 30, 1969, if such assets constitute a trade or business which has been actively conducted throughout the one-year period ending on the date of the distribution; “(D) a distribution of stock or securities pursuant to the terms of a final judgment rendered by a court with respect to the distributing corporation in a court proceeding under the Sherman Act (26 Stat. 209; 15 U.S.C. 1–7) or the Clayton Act (38 Stat. 730; 15 U.S.C. 12–27), or both, to which the United States is a party, but only if the distribution of such stock or securities in redemption of the distributing corporation’s stock is in furtherance of the purposes of the judgment; “(E) a distribution to the extent that section 303(a) (relating to distributions in redemption of stock to pay death taxes) applies to such distribution; 83 Stat. 714 “(F) a distribution to a private foundation in redemption of stock which is described in section 537(b)(2)(A) and (B); and “(G) a distribution by a corporation to which part I of subchapter M (relating to regulated investment companies) applies, if such distribution is in redemption of its stock upon the demand of the shareholder.” (b) Conforming Amendments.— (1) Section 311(a) is amended by striking out “subsections (b) and (c)” and inserting in lieu thereof “subsections (b), (c), and (d)”. (2) Sections 301(b)(1)(B)(ii), 301(d)(2)(B), and 312(c)(3) are each amended by striking out “subsection (b) or (c)” and inserting in lieu thereof “subsection (b), (c), or (d)”. (c) Effective Date.— (1) Except as provided in paragraphs (2) and (3), the amendments made by subsections (a) and (b) shall apply with respect to distributions after November 30, 1969. (2) The amendments made by subsections (a) and (b) shall not apply to a distribution before April 1, 1970, pursuant to the terms of— (A) a written contract which was binding on the distributing corporation on November 30, 1969, and at all times thereafter before the distribution, (B) an offer made by the distributing corporation before December 1, 1969, (C) an offer made in accordance with a request for a ruling filed by the distributing corporation with the Internal Revenue Service before December 1, 1969, or (D) an offer made in accordance with a registration statement filed with the Securities and Exchange Commission before December 1, 1969. For purposes of subparagraphs (B), (C), and (D), an offer shall be treated as an offer only if it was in writing and not revocable by its express terms. (3) The amendments made by subsections (a) and (b) shall not apply to a distribution by a corporation of specific property in redemption of stock outstanding on November 30, 1969, if— (A) every holder of such stock on such date had the right to demand redemption of his stock in such specific property, and (B) the corporation had such specific property on hand on such date in a quantity sufficient to redeem all of such stock. For purposes of the preceding sentence, stock shall be considered to have been outstanding on November 30, 1969, if it could have been acquired on such date through the exercise of an existing right of conversion contained in other stock held on such date.