TAX TREATMENT OF CERTAIN EXTRAORDINARY DIVIDENDS.

SEC. 1011. TAX TREATMENT OF CERTAIN EXTRAORDINARY DIVIDENDS. (a) Treatment of Extraordinary Dividends in Excess of Basis.—Paragraph (2) of section 1059(a) (relating to corporate shareholder’s recognition of gain attributable to nontaxed portion of extraordinary dividends) is amended to read as follows: “(2) Amounts in excess of basis.—If the nontaxed portion of such dividends exceeds such basis, such excess shall be treated as gain from the sale or exchange of such stock for 111 STAT. 913the taxable year in which the extraordinary dividend is received.”. (b) Treatment of Redemptions Where Options Involved.—Paragraph (1) of section 1059(e) (relating to treatment of partial liquidations and non-pro rata redemptions) is amended to read as follows: “(1) Treatment of partial liquidations and certain redemptions.—Except as otherwise provided in regulations— “(A) Redemptions.—In the case of any redemption of stock— “(i) which is part of a partial liquidation (within the meaning of section 302(e)) of the redeeming corporation, “(ii) which is not pro rata as to all shareholders, or “(iii) which would not have been treated (in whole or in part) as a dividend if any options had not been taken into account under section 318(a)(4), any amount treated as a dividend with respect to such redemption shall be treated as an extraordinary dividend to which paragraphs (1) and (2) of subsection (a) apply without regard to the period the taxpayer held such stock. In the case of a redemption described in clause (iii), only the basis in the stock redeemed shall be taken into account under subsection (a). “(B) Reorganizations, etc.—An exchange described in section 356 which is treated as a dividend shall be treated as a redemption of stock for purposes of applying subparagraph (A).”. (c) Time for Reduction.—Paragraph (1) of section 1059(d) is amended to read as follows: “(1) Time for reduction.—Any reduction in basis under subsection (a)(1) shall be treated as occurring at the beginning of the ex-dividend date of the extraordinary dividend to which the reduction relates”. (d) Effective Dates.— (1) In general.—The amendments made by this section shall apply to distributions after May 3, 1995. (2) Transition rule.—The amendments made by this section shall not apply to any distribution made pursuant to the terms of— (A) a written binding contract in effect on May 3, 1995, and at all times thereafter before such distribution, or (B) a tender offer outstanding on May 3, 1995. (3) Certain dividends not pursuant to certain redemptions.—In determining whether the amendment made by subsection (a) applies to any extraordinary dividend other than a dividend treated as an extraordinary dividend under section 1059(e)(1) of the Internal Revenue Code of 1986 (as amended by this Act), paragraphs (1) and (2) shall be applied by substituting “September 13, 1995” for “May 3, 1995”.111 STAT. 914