APPLICATION OF SECTION 355 TO DISTRIBUTIONS IN CONNECTION WITH ACQUISITIONS AND TO INTRAGROUP TRANSACTIONS.

SEC. 1012. APPLICATION OF SECTION 355 TO DISTRIBUTIONS IN CONNECTION WITH ACQUISITIONS AND TO INTRAGROUP TRANSACTIONS. (a) Distributions In Connection With Acquisitions.—Section 355 (relating to distributions of stock and securities of a controlled corporation) is amended by adding at the end the following new subsection: “(e) Recognition of Gain on Certain Distributions of Stock or Securities In Connection With Acquisitions.— “(1) General rule.—If there is a distribution to which this subsection applies, any stock or securities in the controlled corporation shall not be treated as qualified property for purposes of subsection (c)(2) of this section or section 361(c)(2). “(2) Distributions to which subsection applies.— “(A) In general.—This subsection shall apply to any distribution— “(i) to which this section (or so much of section 356 as relates to this section) applies, and “(ii) which is part of a plan (or series of related transactions) pursuant to which 1 or more persons acquire directly or indirectly stock representing a 50-percent or greater interest in the distributing corporation or any controlled corporation. “(B) Plan presumed to exist in certain cases.—If 1 or more persons acquire directly or indirectly stock representing a 50-percent or greater interest in the distributing corporation or any controlled corporation during the 4-year period beginning on the date which is 2 years before the date of the distribution, such acquisition shall be treated as pursuant to a plan described in subparagraph (A)(ii) unless it is established that the distribution and the acquisition are not pursuant to a plan or series of related transactions. “(C) Certain plans disregarded.—A plan (or series of related transactions) shall not be treated as described in subparagraph (A)(ii) if, immediately after the completion of such plan or transactions, the distributing corporation and all controlled corporations are members of a single affiliated group (as defined in section 1504 without regard to subsection (b) thereof). “(D) Coordination with subsection (d).—This subsection shall not apply to any distribution to which subsection (d) applies. “(3) Special rules relating to acquisitions.— “(A) Certain acquisitions not taken into account.—Except as provided in regulations, the following acquisitions shall not be treated as described in paragraph (2)(A)(ii): “(i) The acquisition of stock in any controlled corporation by the distributing corporation. “(ii) The acquisition by a person of stock in any controlled corporation by reason of holding stock or securities in the distributing corporation. “(iii) The acquisition by a person of stock in any successor corporation of the distributing corporation or any controlled corporation by reason of holding stock 111 STAT. 915or securities in such distributing or controlled corporation. “(iv) The acquisition of stock in a corporation if shareholders owning directly or indirectly stock possessing— “(I) more than 50 percent of the total combined voting power of all classes of stock entitled to vote, and “(II) more than 50 percent of the total value of shares of all classes of stock, in the distributing corporation or any controlled corporation before such acquisition own directly or indirectly stock possessing such vote and value in such distributing or controlled corporation after such acquisition. This subparagraph shall not apply to any acquisition if the stock held before the acquisition was acquired pursuant to a plan (or series of related transactions) described in paragraph (2)(A)(ii). “(B) Asset acquisitions.—Except as provided in regulations, for purposes of this subsection, if the assets of the distributing corporation or any controlled corporation are acquired by a successor corporation in a transaction described in subparagraph (A), (C), or (D) of section 368(a)(1) or any other transaction specified in regulations by the Secretary, the shareholders (immediately before the acquisition) of the corporation acquiring such assets shall be treated as acquiring stock in the corporation from which the assets were acquired. “(4) Definition and special rules.—For purposes of this subsection— “(A) 50-percent or greater interest.—The term ‘50-percent or greater interest’ has the meaning given such term by subsection (d)(4). “(B) Distributions in title ii or similar case.—Paragraph (1) shall not apply to any distribution made in a title 11 or similar case (as defined in section 368(a)(3)). “(C) Aggregation and attribution rules.— “(i) Aggregation.—The rules of paragraph (7)(A) of subsection (d) shall apply. “(ii) Attribution.—Section 318(a)(2) shall apply in determining whether a person holds stock or securities in any corporation. Except as provided in regulations, section 318(a)(2)(C) shall be applied without regard to the phrase ‘50 percent or more in value’ for purposes of the preceding sentence. “(D) Successors and predecessors.—For purposes of this subsection, any reference to a controlled corporation or a distributing corporation shall include a reference to any predecessor or successor of such corporation. “(E) Statute of limitations.—If there is a distribution to which paragraph (1) applies— “(i) the statutory period for the assessment of any deficiency attributable to any part of the gain recognized under this subsection by reason of such distribution shall not expire before the expiration of 3 years from the date the Secretary is notified by the taxpayer 111 STAT. 916(in such manner as the Secretary may by regulations prescribe) that such distribution occurred, and “(ii) such deficiency may be assessed before the expiration of such 3-year period notwithstanding the provisions of any other law or rule of law which would otherwise prevent such assessment. “(5) Regulations.—The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subsection, including regulations— “(A) providing for the application of this subsection where there is more than 1 controlled corporation, “(B) treating 2 or more distributions as 1 distribution where necessary to prevent the avoidance of such purposes, and “(C) providing for the application of rules similar to the rules of subsection (d)(6) where appropriate for purposes of paragraph (2)(B).”. (b) Special Rules for Certain Intragroup Transactions.—(1) Section 355 not to apply.—Section 355, as amended by subsection (a), is amended by adding at the end the following new subsection: “(f) Section Not To Apply to Certain Intragroup Distributions.—Except as provided in regulations, this section (or so much of section 356 as relates to this section) shall not apply to the distribution of stock from 1 member of an affiliated group (as defined in section 1504(a)) to another member of such group if such distribution is part of a plan (or series of related transactions) described in subsection (e)(2)(A)(ii) (determined after the application of subsection (e)).”. (2) Adjustments to basis.—Section 358 (relating to basis to distributees) is amended by adding at the end the following new subsection: “(g) Adjustments in Intragroup Transactions Involving Section 355.—In the case of a distribution to which section 355 (or so much of section 356 as relates to section 355) applies and which involves the distribution of stock from 1 member of an affiliated group (as defined in section 1504(a) without regard to subsection (b) thereof) to another member of such group, the Secretary may, notwithstanding any other provision of this section, provide adjustments to the adjusted basis of any stock which— “(1) is in a corporation which is a member of such group, and “(2) is held by another member of such group, to appropriately reflect the proper treatment of such distribution.”. (c) Determination of Control in Certain Divisive Transactions.— (1) Section 351 transactions.—Section 351(c) (relating to special rule) is amended to read as follows: “(c) Special Rules Where Distribution to Shareholders.—In determining control for purposes of this section— “(1) the fact that any corporate transferor distributes part or all of the stock in the corporation which it receives in the exchange to its shareholders shall not be taken into account, and “(2) if the requirements of section 355 are met with respect to such distribution, the shareholders shall be treated as in control of such corporation immediately after the exchange 111 STAT. 917if the shareholders own (immediately after the distribution) stock possessing— “(A) more than 50 percent of the total combined voting power of all classes of stock of such corporation entitled to vote, and “(B) more than 50 percent of the total value of shares of all classes of stock of such corporation.”. (2) D reorganizations.—Section 368(a)(2)(H) (relating to special rule for determining whether certain transactions are qualified under paragraph (1)(D)) is amended to read as follows: “(H) Special rules for determining whether certain transactions are qualified under paragraph (1)(d).—For purposes of determining whether a transaction qualifies under paragraph (1)(D)— “(i) in the case of a transaction with respect to which the requirements of subparagraphs (A) and (B) of section 354(b)(1) are met, the term ‘control’ has the meaning given such term by section 304(c), and “(ii) in the case of a transaction with respect to which the requirements of section 355 are met, the shareholders described in paragraph (1)(D) shall be treated as having control of the corporation to which the assets are transferred if such shareholders own (immediately after the distribution) stock possessing— “(I) more than 50 percent of the total combined voting power of all classes of stock of such corporation entitled to vote, and “(II) more than 50 percent of the total value of shares of all classes of stock of such corporation.”. (d) Effective Dates.— (1) Section 355 rules.—The amendments made by subsections (a) and (b) shall apply to distributions after April 16, 1997, pursuant to a plan (or series of related transactions) which involves an acquisition described in section 355(e)(2)(A)(ii) of the Internal Revenue Code of 1986 occurring after such date. (2) Divisive transactions.—The amendments made by subsection (c) shall apply to transfers after the date of the enactment of this Act. (3) Transition rule.—The amendments made by this section shall not apply to any distribution pursuant to a plan (or series of related transactions) which involves an acquisition described in section 355(e)(2)(A)(ii) of the Internal Revenue Code of 1986 (or, in the case of the amendments made by subsection (c), any transfer) occurring after April 16, 1997, if such acquisition or transfer is— (A) made pursuant to an agreement which was binding on such date and at all times thereafter, (B) described in a ruling request submitted to the Internal Revenue Service on or before such date, or (C) described on or before such date in a public announcement or in a filing with the Securities and Exchange Commission required solely by reason of the acquisition or transfer. This paragraph shall not apply to any agreement, ruling request, or public announcement or filing unless it identifies 111 STAT. 918the acquirer of the distributing corporation or any controlled corporation, or the transferee, whichever is applicable.