TREATMENT OF DISTRIBUTIONS DURING LOSS YEARS.

SEC. 1309. TREATMENT OF DISTRIBUTIONS DURING LOSS YEARS. (a) Adjustments for Distributions Taken Into Account Before Losses.— (1) Subparagraph (A) of section 1366(d)(1) (relating to losses and deductions cannot exceed shareholder’s basis in stock and debt) is amended by striking “paragraph (1)” and inserting “paragraphs (1) and (2)(A)”. (2) Subsection (d) of section 1368 (relating to certain adjustments taken into account) is amended by adding at the end the following new flush sentence: “In the case of any distribution made during any taxable year, the adjusted basis of the stock shall be determined with regard to the adjustments provided in paragraph (1) of section 1367(a) for the taxable year.”. (b) Accumulated Adjustments Account.— Paragraph (1) of section 1368(e) (relating to accumulated adjustments account) is amended by adding at the end the following new subparagraph: “(C) Net loss for year disregarded.— “(i) In general.— In applying this section to distributions made during any taxable year, the amount in the accumulated adjustments account as of the close of such taxable year shall be determined without regard to any net negative adjustment for such taxable year. “(ii) Net negative adjustment.— For purposes of clause (i), the term ‘net negative adjustment’ means, with respect to any taxable year, the excess (if any) of— “(I) the reductions in the account for the taxable year (other than for distributions), over “(II) the increases in such account for such taxable year.”. (c) Conforming Amendments.— Subparagraph (A) of section 1368(e)(1) is amended— 110 STAT. 1784 “(1) by striking “as provided in subparagraph (B)” and inserting “as otherwise provided in this paragraph”, and “(2) by striking “section 1367(b)(2)(A)” and inserting “section 1367(a)(2)”.