Internal Revenue Code:Sec. 382. Limitation on net operating loss carryforwards and certain built-in losses following ownership change
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Contents |
Location in Internal Revenue Code
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART V - CARRYOVERS
Statute
Sec. 382. Limitation on net operating loss carryforwards and
certain built-in losses following ownership change
(a) General rule
The amount of the taxable income of any new loss corporation for
any post-change year which may be offset by pre-change losses shall
not exceed the section 382 limitation for such year.
(b) Section 382 limitation
For purposes of this section -
(1) In general
Except as otherwise provided in this section, the section 382
limitation for any post-change year is an amount equal to -
(A) the value of the old loss corporation, multiplied by
(B) the long-term tax-exempt rate.
(2) Carryforward of unused limitation
If the section 382 limitation for any post-change year exceeds
the taxable income of the new loss corporation for such year
which was offset by pre-change losses, the section 382 limitation
for the next post-change year shall be increased by the amount of
such excess.
(3) Special rule for post-change year which includes change date
In the case of any post-change year which includes the change
date -
(A) Limitation does not apply to taxable income before change
Subsection (a) shall not apply to the portion of the taxable
income for such year which is allocable to the period in such
year on or before the change date. Except as provided in
subsection (h)(5) and in regulations, taxable income shall be
allocated ratably to each day in the year.
(B) Limitation for period after change
For purposes of applying the limitation of subsection (a) to
the remainder of the taxable income for such year, the section
382 limitation shall be an amount which bears the same ratio to
such limitation (determined without regard to this paragraph)
as -
(i) the number of days in such year after the change date,
bears to
(ii) the total number of days in such year.
(c) Carryforwards disallowed if continuity of business requirements
not met
(1) In general
Except as provided in paragraph (2), if the new loss
corporation does not continue the business enterprise of the old
loss corporation at all times during the 2-year period beginning
on the change date, the section 382 limitation for any
post-change year shall be zero.
(2) Exception for certain gains
The section 382 limitation for any post-change year shall not
be less than the sum of -
(A) any increase in such limitation under -
(i) subsection (h)(1)(A) for recognized built-in gains for
such year, and
(ii) subsection (h)(1)(C) for gain recognized by reason of
an election under section 338, plus
(B) any increase in such limitation under subsection (b)(2)
for amounts described in subparagraph (A) which are carried
forward to such year.
(d) Pre-change loss and post-change year
For purposes of this section -
(1) Pre-change loss
The term ''pre-change loss'' means -
(A) any net operating loss carryforward of the old loss
corporation to the taxable year ending with the ownership
change or in which the change date occurs, and
(B) the net operating loss of the old loss corporation for
the taxable year in which the ownership change occurs to the
extent such loss is allocable to the period in such year on or
before the change date.
Except as provided in subsection (h)(5) and in regulations, the
net operating loss shall, for purposes of subparagraph (B), be
allocated ratably to each day in the year.
(2) Post-change year
The term ''post-change year'' means any taxable year ending
after the change date.
(e) Value of old loss corporation
For purposes of this section -
(1) In general
Except as otherwise provided in this subsection, the value of
the old loss corporation is the value of the stock of such
corporation (including any stock described in section 1504(a)(4))
immediately before the ownership change.
(2) Special rule in the case of redemption or other corporate
contraction
If a redemption or other corporate contraction occurs in
connection with an ownership change, the value under paragraph
(1) shall be determined after taking such redemption or other
corporate contraction into account.
(3) Treatment of foreign corporations
Except as otherwise provided in regulations, in determining the
value of any old loss corporation which is a foreign corporation,
there shall be taken into account only items treated as connected
with the conduct of a trade or business in the United States.
(f) Long-term tax-exempt rate
For purposes of this section -
(1) In general
The long-term tax-exempt rate shall be the highest of the
adjusted Federal long-term rates in effect for any month in the
3-calendar-month period ending with the calendar month in which
the change date occurs.
(2) Adjusted Federal long-term rate
For purposes of paragraph (1), the term ''adjusted Federal
long-term rate'' means the Federal long-term rate determined
under section 1274(d), except that -
(A) paragraphs (2) and (3) thereof shall not apply, and
(B) such rate shall be properly adjusted for differences
between rates on long-term taxable and tax-exempt obligations.
(g) Ownership change
For purposes of this section -
(1) In general
There is an ownership change if, immediately after any owner
shift involving a 5-percent shareholder or any equity structure
shift -
(A) the percentage of the stock of the loss corporation owned
by 1 or more 5-percent shareholders has increased by more than
50 percentage points, over
(B) the lowest percentage of stock of the loss corporation
(or any predecessor corporation) owned by such shareholders at
any time during the testing period.
(2) Owner shift involving 5-percent shareholder
There is an owner shift involving a 5-percent shareholder if -
(A) there is any change in the respective ownership of stock
of a corporation, and
(B) such change affects the percentage of stock of such
corporation owned by any person who is a 5-percent shareholder
before or after such change.
(3) Equity structure shift defined
(A) In general
The term ''equity structure shift'' means any reorganization
(within the meaning of section 368). Such term shall not
include -
(i) any reorganization described in subparagraph (D) or (G)
of section 368(a)(1) unless the requirements of section
354(b)(1) are met, and
(ii) any reorganization described in subparagraph (F) of
section 368(a)(1).
(B) Taxable reorganization-type transactions, etc.
To the extent provided in regulations, the term ''equity
structure shift'' includes taxable reorganization-type
transactions, public offerings, and similar transactions.
(4) Special rules for application of subsection
(A) Treatment of less than 5-percent shareholders
Except as provided in subparagraphs (B)(i) and (C), in
determining whether an ownership change has occurred, all stock
owned by shareholders of a corporation who are not 5-percent
shareholders of such corporation shall be treated as stock
owned by 1 5-percent shareholder of such corporation.
(B) Coordination with equity structure shifts
For purposes of determining whether an equity structure shift
(or subsequent transaction) is an ownership change -
(i) Less than 5-percent shareholders
Subparagraph (A) shall be applied separately with respect
to each group of shareholders (immediately before such equity
structure shift) of each corporation which was a party to the
reorganization involved in such equity structure shift.
(ii) Acquisitions of stock
Unless a different proportion is established, acquisitions
of stock after such equity structure shift shall be treated
as being made proportionately from all shareholders
immediately before such acquisition.
(C) Coordination with other owner shifts
Except as provided in regulations, rules similar to the rules
of subparagraph (B) shall apply in determining whether there
has been an owner shift involving a 5-percent shareholder and
whether such shift (or subsequent transaction) results in an
ownership change.
(D) Treatment of worthless stock
If any stock held by a 50-percent shareholder is treated by
such shareholder as becoming worthless during any taxable year
of such shareholder and such stock is held by such shareholder
as of the close of such taxable year, for purposes of
determining whether an ownership change occurs after the close
of such taxable year, such shareholder -
(i) shall be treated as having acquired such stock on the
1st day of his 1st succeeding taxable year, and
(ii) shall not be treated as having owned such stock during
any prior period.
For purposes of the preceding sentence, the term ''50-percent
shareholder'' means any person owning 50 percent or more of the
stock of the corporation at any time during the 3-year period
ending on the last day of the taxable year with respect to
which the stock was so treated.
(h) Special rules for built-in gains and losses and section 338
gains
For purposes of this section -
(1) In general
(A) Net unrealized built-in gain
(i) In general
If the old loss corporation has a net unrealized built-in
gain, the section 382 limitation for any recognition period
taxable year shall be increased by the recognized built-in
gains for such taxable year.
(ii) Limitation
The increase under clause (i) for any recognition period
taxable year shall not exceed -
(I) the net unrealized built-in gain, reduced by
(II) recognized built-in gains for prior years ending in
the recognition period.
(B) Net unrealized built-in loss
(i) In general
If the old loss corporation has a net unrealized built-in
loss, the recognized built-in loss for any recognition period
taxable year shall be subject to limitation under this
section in the same manner as if such loss were a pre-change
loss.
(ii) Limitation
Clause (i) shall apply to recognized built-in losses for
any recognition period taxable year only to the extent such
losses do not exceed -
(I) the net unrealized built-in loss, reduced by
(II) recognized built-in losses for prior taxable years
ending in the recognition period.
(C) Special rules for certain section 338 gains
If an election under section 338 is made in connection with
an ownership change and the net unrealized built-in gain is
zero by reason of paragraph (3)(B), then, with respect to such
change, the section 382 limitation for the post-change year in
which gain is recognized by reason of such election shall be
increased by the lesser of -
(i) the recognized built-in gains by reason of such
election, or
(ii) the net unrealized built-in gain (determined without
regard to paragraph (3)(B)).
(2) Recognized built-in gain and loss
(A) Recognized built-in gain
The term ''recognized built-in gain'' means any gain
recognized during the recognition period on the disposition of
any asset to the extent the new loss corporation establishes
that -
(i) such asset was held by the old loss corporation
immediately before the change date, and
(ii) such gain does not exceed the excess of -
(I) the fair market value of such asset on the change
date, over
(II) the adjusted basis of such asset on such date.
(B) Recognized built-in loss
The term ''recognized built-in loss'' means any loss
recognized during the recognition period on the disposition of
any asset except to the extent the new loss corporation
establishes that -
(i) such asset was not held by the old loss corporation
immediately before the change date, or
(ii) such loss exceeds the excess of -
(I) the adjusted basis of such asset on the change date,
over
(II) the fair market value of such asset on such date.
Such term includes any amount allowable as depreciation,
amortization, or depletion for any period within the
recognition period except to the extent the new loss
corporation establishes that the amount so allowable is not
attributable to the excess described in clause (ii).
(3) Net unrealized built-in gain and loss defined
(A) Net unrealized built-in gain and loss
(i) In general
The terms ''net unrealized built-in gain'' and ''net
unrealized built-in loss'' mean, with respect to any old loss
corporation, the amount by which -
(I) the fair market value of the assets of such
corporation immediately before an ownership change is more
or less, respectively, than
(II) the aggregate adjusted basis of such assets at such
time.
(ii) Special rule for redemptions or other corporate
contractions
If a redemption or other corporate contraction occurs in
connection with an ownership change, to the extent provided
in regulations, determinations under clause (i) shall be made
after taking such redemption or other corporate contraction
into account.
(B) Threshold requirement
(i) In general
If the amount of the net unrealized built-in gain or net
unrealized built-in loss (determined without regard to this
subparagraph) of any old loss corporation is not greater than
the lesser of -
(I) 15 percent of the amount determined for purposes of
subparagraph (A)(i)(I), or
(II) $10,000,000,
the net unrealized built-in gain or net unrealized built-in
loss shall be zero.
(ii) Cash and cash items not taken into account
In computing any net unrealized built-in gain or net
unrealized built-in loss under clause (i), except as provided
in regulations, there shall not be taken into account -
(I) any cash or cash item, or
(II) any marketable security which has a value which does
not substantially differ from adjusted basis.
(4) Disallowed loss allowed as a carryforward
If a deduction for any portion of a recognized built-in loss is
disallowed for any post-change year, such portion -
(A) shall be carried forward to subsequent taxable years
under rules similar to the rules for the carrying forward of
net operating losses (or to the extent the amount so disallowed
is attributable to capital losses, under rules similar to the
rules for the carrying forward of net capital losses), but
(B) shall be subject to limitation under this section in the
same manner as a pre-change loss.
(5) Special rules for post-change year which includes change date
For purposes of subsection (b)(3) -
(A) in applying subparagraph (A) thereof, taxable income
shall be computed without regard to recognized built-in gains
to the extent such gains increased the section 382 limitation
for the year (or recognized built-in losses to the extent such
losses are treated as pre-change losses), and gain described in
paragraph (1)(C), for the year, and
(B) in applying subparagraph (B) thereof, the section 382
limitation shall be computed without regard to recognized
built-in gains, and gain described in paragraph (1)(C), for the
year.
(6) Treatment of certain built-in items
(A) Income items
Any item of income which is properly taken into account
during the recognition period but which is attributable to
periods before the change date shall be treated as a recognized
built-in gain for the taxable year in which it is properly
taken into account.
(B) Deduction items
Any amount which is allowable as a deduction during the
recognition period (determined without regard to any carryover)
but which is attributable to periods before the change date
shall be treated as a recognized built-in loss for the taxable
year for which it is allowable as a deduction.
(C) Adjustments
The amount of the net unrealized built-in gain or loss shall
be properly adjusted for amounts which would be treated as
recognized built-in gains or losses under this paragraph if
such amounts were properly taken into account (or allowable as
a deduction) during the recognition period.
(7) Recognition period, etc.
(A) Recognition period
The term ''recognition period'' means, with respect to any
ownership change, the 5-year period beginning on the change
date.
(B) Recognition period taxable year
The term ''recognition period taxable year'' means any
taxable year any portion of which is in the recognition period.
(8) Determination of fair market value in certain cases
If 80 percent or more in value of the stock of a corporation is
acquired in 1 transaction (or in a series of related transactions
during any 12-month period), for purposes of determining the net
unrealized built-in loss, the fair market value of the assets of
such corporation shall not exceed the grossed up amount paid for
such stock properly adjusted for indebtedness of the corporation
and other relevant items.
(9) Tax-free exchanges or transfers
The Secretary shall prescribe such regulations as may be
necessary to carry out the purposes of this subsection where
property held on the change date was acquired (or is subsequently
transferred) in a transaction where gain or loss is not
recognized (in whole or in part).
(i) Testing period
For purposes of this section -
(1) 3-year period
Except as otherwise provided in this section, the testing
period is the 3-year period ending on the day of any owner shift
involving a 5-percent shareholder or equity structure shift.
(2) Shorter period where there has been recent ownership change
If there has been an ownership change under this section, the
testing period for determining whether a 2nd ownership change has
occurred shall not begin before the 1st day following the change
date for such earlier ownership change.
(3) Shorter period where all losses arise after 3-year period
begins
The testing period shall not begin before the earlier of the
1st day of the 1st taxable year from which there is a
carryforward of a loss or of an excess credit to the 1st
post-change year or the taxable year in which the transaction
being tested occurs. Except as provided in regulations, this
paragraph shall not apply to any loss corporation which has a net
unrealized built-in loss (determined after application of
subsection (h)(3)(B)).
(j) Change date
For purposes of this section, the change date is -
(1) in the case where the last component of an ownership change
is an owner shift involving a 5-percent shareholder, the date on
which such shift occurs, and
(2) in the case where the last component of an ownership change
is an equity structure shift, the date of the reorganization.
(k) Definitions and special rules
For purposes of this section -
(1) Loss corporation
The term ''loss corporation'' means a corporation entitled to
use a net operating loss carryover or having a net operating loss
for the taxable year in which the ownership change occurs.
Except to the extent provided in regulations, such term includes
any corporation with a net unrealized built-in loss.
(2) Old loss corporation
The term ''old loss corporation'' means any corporation -
(A) with respect to which there is an ownership change, and
(B) which (before the ownership change) was a loss
corporation.
(3) New loss corporation
The term ''new loss corporation'' means a corporation which
(after an ownership change) is a loss corporation. Nothing in
this section shall be treated as implying that the same
corporation may not be both the old loss corporation and the new
loss corporation.
(4) Taxable income
Taxable income shall be computed with the modifications set
forth in section 172(d).
(5) Value
The term ''value'' means fair market value.
(6) Rules relating to stock
(A) Preferred stock
Except as provided in regulations and subsection (e), the
term ''stock'' means stock other than stock described in
section 1504(a)(4).
(B) Treatment of certain rights, etc.
The Secretary shall prescribe such regulations as may be
necessary -
(i) to treat warrants, options, contracts to acquire stock,
convertible debt interests, and other similar interests as
stock, and
(ii) to treat stock as not stock.
(C) Determinations on basis of value
Determinations of the percentage of stock of any corporation
held by any person shall be made on the basis of value.
(7) 5-percent shareholder
The term ''5-percent shareholder'' means any person holding 5
percent or more of the stock of the corporation at any time
during the testing period.
(l) Certain additional operating rules
For purposes of this section -
(1) Certain capital contributions not taken into account
(A) In general
Any capital contribution received by an old loss corporation
as part of a plan a principal purpose of which is to avoid or
increase any limitation under this section shall not be taken
into account for purposes of this section.
(B) Certain contributions treated as part of plan
For purposes of subparagraph (A), any capital contribution
made during the 2-year period ending on the change date shall,
except as provided in regulations, be treated as part of a plan
described in subparagraph (A).
(2) Ordering rules for application of section
(A) Coordination with section 172(b) carryover rules
In the case of any pre-change loss for any taxable year
(hereinafter in this subparagraph referred to as the ''loss
year'') subject to limitation under this section, for purposes
of determining under the 2nd sentence of section 172(b)(2) the
amount of such loss which may be carried to any taxable year,
taxable income for any taxable year shall be treated as not
greater than -
(i) the section 382 limitation for such taxable year,
reduced by
(ii) the unused pre-change losses for taxable years
preceding the loss year.
Similar rules shall apply in the case of any credit or loss
subject to limitation under section 383.
(B) Ordering rule for losses carried from same taxable year
In any case in which -
(i) a pre-change loss of a loss corporation for any taxable
year is subject to a section 382 limitation, and
(ii) a net operating loss of such corporation from such
taxable year is not subject to such limitation,
taxable income shall be treated as having been offset first by
the loss subject to such limitation.
(3) Operating rules relating to ownership of stock
(A) Constructive ownership
Section 318 (relating to constructive ownership of stock)
shall apply in determining ownership of stock, except that -
(i) paragraphs (1) and (5)(B) of section 318(a) shall not
apply and an individual and all members of his family
described in paragraph (1) of section 318(a) shall be treated
as 1 individual for purposes of applying this section,
(ii) paragraph (2) of section 318(a) shall be applied -
(I) without regard to the 50-percent limitation contained
in subparagraph (C) thereof, and
(II) except as provided in regulations, by treating stock
attributed thereunder as no longer being held by the entity
from which attributed,
(iii) paragraph (3) of section 318(a) shall be applied only
to the extent provided in regulations,
(iv) except to the extent provided in regulations, an
option to acquire stock shall be treated as exercised if such
exercise results in an ownership change, and
(v) in attributing stock from an entity under paragraph (2)
of section 318(a), there shall not be taken into account -
(I) in the case of attribution from a corporation, stock
which is not treated as stock for purposes of this section,
or
(II) in the case of attribution from another entity, an
interest in such entity similar to stock described in
subclause (I).
A rule similar to the rule of clause (iv) shall apply in the
case of any contingent purchase, warrant, convertible debt,
put, stock subject to a risk of forfeiture, contract to acquire
stock, or similar interests.
(B) Stock acquired by reason of death, gift, divorce,
separation, etc.
If -
(i) the basis of any stock in the hands of any person is
determined -
(I) under section 1014 (relating to property acquired
from a decedent),
(II) section 1015 (relating to property acquired by a
gift or transfer in trust), or
(III) section 1041(b)(2) (relating to transfers of
property between spouses or incident to divorce),
(ii) stock is received by any person in satisfaction of a
right to receive a pecuniary bequest, or
(iii) stock is acquired by a person pursuant to any divorce
or separation instrument (within the meaning of section
71(b)(2)),
such person shall be treated as owning such stock during the
period such stock was owned by the person from whom it was
acquired.
(C) Certain changes in percentage ownership which are
attributable to fluctuations in value not taken into
account
Except as provided in regulations, any change in
proportionate ownership which is attributable solely to
fluctuations in the relative fair market values of different
classes of stock shall not be taken into account.
(4) Reduction in value where substantial nonbusiness assets
(A) In general
If, immediately after an ownership change, the new loss
corporation has substantial nonbusiness assets, the value of
the old loss corporation shall be reduced by the excess (if
any) of -
(i) the fair market value of the nonbusiness assets of the
old loss corporation, over
(ii) the nonbusiness asset share of indebtedness for which
such corporation is liable.
(B) Corporation having substantial nonbusiness assets
For purposes of subparagraph (A) -
(i) In general
The old loss corporation shall be treated as having
substantial nonbusiness assets if at least 1/3 of the value
of the total assets of such corporation consists of
nonbusiness assets.
(ii) Exception for certain investment entities
A regulated investment company to which part I of
subchapter M applies, a real estate investment trust to which
part II of subchapter M applies, or a REMIC to which part IV
of
subchapter M applies, shall not be treated as a new loss
corporation having substantial nonbusiness assets.
(C) Nonbusiness assets
For purposes of this paragraph, the term ''nonbusiness
assets'' means assets held for investment.
(D) Nonbusiness asset share
For purposes of this paragraph, the nonbusiness asset share
of the indebtedness of the corporation is an amount which bears
the same ratio to such indebtedness as -
(i) the fair market value of the nonbusiness assets of the
corporation, bears to
(ii) the fair market value of all assets of such
corporation.
(E) Treatment of subsidiaries
For purposes of this paragraph, stock and securities in any
subsidiary corporation shall be disregarded and the parent
corporation shall be deemed to own its ratable share of the
subsidiary's assets. For purposes of the preceding sentence, a
corporation shall be treated as a subsidiary if the parent owns
50 percent or more of the combined voting power of all classes
of stock entitled to vote, and 50 percent or more of the total
value of shares of all classes of stock.
(5) Title 11 or similar case
(A) In general
Subsection (a) shall not apply to any ownership change if -
(i) the old loss corporation is (immediately before such
ownership change) under the jurisdiction of the court in a
title 11 or similar case, and
(ii) the shareholders and creditors of the old loss
corporation (determined immediately before such ownership
change) own (after such ownership change and as a result of
being shareholders or creditors immediately before such
change) stock of the new loss corporation (or stock of a
controlling corporation if also in bankruptcy) which meets
the requirements of section 1504(a)(2) (determined by
substituting ''50 percent'' for ''80 percent'' each place it
appears).
(B) Reduction for interest payments to creditors becoming
shareholders
In any case to which subparagraph (A) applies, the pre-change
losses and excess credits (within the meaning of section
383(a)(2)) which may be carried to a post-change year shall be
computed as if no deduction was allowable under this chapter
for the interest paid or accrued by the old loss corporation on
indebtedness which was converted into stock pursuant to title
11 or similar case during -
(i) any taxable year ending during the 3-year period
preceding the taxable year in which the ownership change
occurs, and
(ii) the period of the taxable year in which the ownership
change occurs on or before the change date.
(C) Coordination with section 108
In applying section 108(e)(8) to any case to which
subparagraph (A) applies, there shall not be taken into account
any indebtedness for interest described in subparagraph (B).
(D) Section 382 limitation zero if another change within 2
years
If, during the 2-year period immediately following an
ownership change to which this paragraph applies, an ownership
change of the new loss corporation occurs, this paragraph shall
not apply and the section 382 limitation with respect to the
2nd ownership change for any post-change year ending after the
change date of the 2nd ownership change shall be zero.
(E) Only certain stock taken into account
For purposes of subparagraph (A)(ii), stock transferred to a
creditor shall be taken into account only to the extent such
stock is transferred in satisfaction of indebtedness and only
if such indebtedness -
(i) was held by the creditor at least 18 months before the
date of the filing of the title 11 or similar case, or
(ii) arose in the ordinary course of the trade or business
of the old loss corporation and is held by the person who at
all times held the beneficial interest in such indebtedness.
(F) Special rule for certain financial institutions
(i) In general
In the case of any ownership change to which this
subparagraph applies, this paragraph shall be applied -
(I) by substituting ''1504(a)(2)(B)'' for ''1504(a)(2)''
and ''20 percent'' for ''50 percent'' in subparagraph
(A)(ii), and
(II) without regard to subparagraphs (B) and (C).
(ii) Special rule for depositors
For purposes of applying this paragraph to an ownership
change to which this subparagraph applies -
(I) a depositor in the old loss corporation shall be
treated as a stockholder in such loss corporation
immediately before the change,
(II) deposits which, after the change, become deposits of
the new loss corporation shall be treated as stock of the
new loss corporation, and
(III) the fair market value of the outstanding stock of
the new loss corporation shall include the amount of
deposits in the new loss corporation immediately after the
change.
(iii) Changes to which subparagraph applies
This subparagraph shall apply to -
(I) an equity structure shift which is a reorganization
described in section 368(a)(3)(D)(ii) (FOOTNOTE 1) (as
modified by section 368(a)(3)(D)(iv)), (FOOTNOTE 1) or
(FOOTNOTE 1) See References in Text note below.
(II) any other equity structure shift (or transaction to
which section 351 applies) which occurs as an integral part
of a transaction involving a change to which subclause (I)
applies.
This subparagraph shall not apply to any equity structure
shift or transaction occurring on or after May 10, 1989.
(G) Title 11 or similar case
For purposes of this paragraph, the term ''title 11 or
similar case'' has the meaning given such term by section
368(a)(3)(A).
(H) Election not to have paragraph apply
A new loss corporation may elect, subject to such terms and
conditions as the Secretary may prescribe, not to have the
provisions of this paragraph apply.
(6) Special rule for insolvency transactions
If paragraph (5) does not apply to any reorganization described
in subparagraph (G) of section 368(a)(1) or any exchange of debt
for stock in a title 11 or similar case (as defined in section
368(a)(3)(A)), the value under subsection (e) shall reflect the
increase (if any) in value of the old loss corporation resulting
from any surrender or cancellation of creditors' claims in the
transaction.
(7) Coordination with alternative minimum tax
The Secretary shall by regulation provide for the application
of this section to the alternative tax net operating loss
deduction under section 56(d).
(8) Predecessor and successor entities
Except as provided in regulations, any entity and any
predecessor or successor entities of such entity shall be treated
as 1 entity.
(m) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this section
and section 383, including (but not limited to) regulations -
(1) providing for the application of this section and section
383 where an ownership change with respect to the old loss
corporation is followed by an ownership change with respect to
the new loss corporation, and
(2) providing for the application of this section and section
383 in the case of a short taxable year,
(3) providing for such adjustments to the application of this
section and section 383 as is necessary to prevent the avoidance
of the purposes of this section and section 383, including the
avoidance of such purposes through the use of related persons,
pass-thru entities, or other intermediaries,
(4) providing for the application of subsection (g)(4) where
there is only 1 corporation involved, and
(5) providing, in the case of any group of corporations
described in section 1563(a) (determined by substituting ''50
percent'' for ''80 percent'' each place it appears and determined
without regard to paragraph (4) thereof), appropriate adjustments
to value, built-in gain or loss, and other items so that items
are not omitted or taken into account more than once.
Sources
(Aug. 16, 1954, ch. 736, 68A Stat. 129; Pub. L. 88-554, Sec.
4(b)(3), Aug. 31, 1964, 78 Stat. 763; Pub. L. 94-455, title VIII,
Sec. 806(e), Oct. 4, 1976, 90 Stat. 1599; Pub. L. 96-589, Sec.
2(d), Dec. 24, 1980, 94 Stat. 3396; Pub. L. 97-34, title II, Sec.
242, Aug. 13, 1981, 95 Stat. 255; Pub. L. 98-369, div. A, title I,
Sec. 62(b)(1), July 18, 1984, 98 Stat. 583; Pub. L. 99-514, title
VI, Sec. 621(a), (e)(1), Oct. 22, 1986, 100 Stat. 2254, 2266; Pub.
L. 100-203, title X, Sec. 10225(a), (b), Dec. 22, 1987, 101 Stat.
1330-413; Pub. L. 100-647, title I, Sec. 1006(d)(1)(A)-(C),
(2)-(10), (17)(A), (18)-(28)(A), (29), (t)(22)(A), title IV, Sec.
4012(a)(3), (b)(1)(B), title V, Sec. 5077(a), Nov. 10, 1988, 102
Stat. 3395-3400, 3426, 3656, 3657, 3683; Pub. L. 101-73, title XIV,
Sec. 1401(a)(2), Aug. 9, 1989, 103 Stat. 548; Pub. L. 101-239,
title VII, Sec. 7205(a), 7304(d)(1), 7811(c)(5)(A), 7815(h),
7841(d)(11), Dec. 19, 1989, 103 Stat. 2335, 2354, 2407, 2420, 2428;
Pub. L. 103-66, title XIII, Sec. 13226(a)(2)(A), Aug. 10, 1993, 107
Stat. 487; Pub. L. 104-188, title I, Sec. 1621(b)(3), Aug. 20,
1996, 110 Stat. 1867.)
References in Text
REFERENCES IN TEXT
Section 368(a)(3)(D), referred to in subsec. (l)(5)(F)(iii)(I),
was amended generally by Pub. L. 99-514, title IX, Sec. 904(a),
Oct. 22, 1986, 100 Stat. 2385, and, as so amended, does not contain
a cl. (ii) or (iv).
Miscellaneous
AMENDMENTS
2004 - Subsec.835(b)(2),Pub.L.108-357, amended Sec.382(l)
(4)(B)(ii)by striking ``a REMIC to which part IV of subchapter M
applies, or a FASIT to which part V of subchapter M
applies,'' and inserting ``or a REMIC to which part IV of
subchapter M applies,''.
1996 - Subsec. (l)(4)(B)(ii). Pub. L. 104-188 substituted ''a
REMIC to which part IV of subchapter M applies, or a FASIT to which
part V of subchapter M applies'' for ''or a REMIC to which part IV
of subchapter M applies''.
1993 - Subsec. (l)(5)(C). Pub. L. 103-66 amended heading and text
of subpar. (C) generally. Prior to amendment, text read as
follows:
''(i) In general. - In any case to which subparagraph (A)
applies, 50 percent of the amount which, but for the application of
section 108(e)(10)(B), would have been applied to reduce tax
attributes under section 108(b) shall be so applied.
''(ii) Clarification with subparagraph (b). - In applying clause
(i), there shall not be taken into account any indebtedness for
interest described in subparagraph (B).''
1989 - Subsec. (h)(3)(B)(i). Pub. L. 101-239, Sec. 7205(a),
amended cl. (i) generally. Prior to amendment, cl. (i) read as
follows: ''If the amount of the net unrealized built-in gain or net
unrealized built-in loss (determined without regard to this
subparagraph) of any old loss corporation is not greater than 25
percent of the amount determined for purposes of subparagraph
(A)(i)(I), the net unrealized built-in gain or net unrealized
built-in loss shall be zero.''
Subsec. (h)(6)(B). Pub. L. 101-239, Sec. 7811(c)(5)(A)(i),
inserted ''(determined without regard to any carryover)'' after
''during the recognition period''.
Subsec. (h)(6)(C). Pub. L. 101-239, Sec. 7811(c)(5)(A)(ii),
substituted ''which would be treated as recognized built-in gains
or losses under this paragraph if such amounts were properly taken
into account (or allowable as a deduction) during the recognition
period'' for ''treated as recognized built-in gains or losses under
this paragraph''.
Subsec. (l)(3)(B)(i)(III). Pub. L. 101-239, Sec. 7841(d)(11),
substituted ''incident to divorce),'' for ''incident to divorce,''.
Subsec. (l)(3)(C). Pub. L. 101-239, Sec. 7304(d)(1), redesignated
subpar. (D) as (C) and struck out former subpar. (C) which related
to special rule for employee stock ownership plans.
Subsec. (l)(3)(C)(ii). Pub. L. 101-239, Sec. 7815(h), substituted
''For purposes of subclause (III),'' for ''for purposes of
subclause (III),'' in concluding provisions.
Subsec. (l)(3)(D). Pub. L. 101-239, Sec. 7304(d)(1), redesignated
subpar. (D) as (C).
Subsec. (l)(5)(F). Pub. L. 101-73 substituted ''on or after May
10, 1989'' for ''after December 31, 1989'' in last sentence.
1988 - Subsec. (e)(2). Pub. L. 100-647, Sec. 1006(d)(1)(A),
inserted ''or other corporate contraction'' after ''redemption'' in
heading and in two places in text.
Subsec. (e)(3). Pub. L. 100-647, Sec. 1006(d)(17)(A), added par.
(3).
Subsec. (g)(1)(A). Pub. L. 100-647, Sec. 1006(d)(21)(A), struck
out ''new'' after ''stock of the''.
Subsec. (g)(1)(B). Pub. L. 100-647, Sec. 1006(d)(21)(B), struck
out ''old'' after ''stock of the''.
Subsec. (g)(4)(C). Pub. L. 100-647, Sec. 1006(d)(2), inserted
''rules similar to'' after ''provided in regulations,''.
Subsec. (h)(1)(C). Pub. L. 100-647, Sec. 1006(d)(3)(A),
substituted ''Special rules for certain section 338 gains'' for
''Section 338 gain'' in heading and amended text generally. Prior
to amendment, text read as follows: ''The section 382 limitation
for any taxable year in which gain is recognized by reason of an
election under section 338 shall be increased by the excess of -
''(i) the amount of such gain, over
''(ii) the portion of such gain taken into account in computing
recognized built-in gains for such taxable year.''
Subsec. (h)(3)(A)(ii). Pub. L. 100-647, Sec. 1006(d)(28)(A),
inserted ''to the extent provided in regulations,'' after ''an
ownership change,''.
Pub. L. 100-647, Sec. 1006(d)(1)(B), inserted ''or other
corporate contractions'' after ''redemptions'' in heading and ''or
other corporate contraction'' after ''redemption'' in two places in
text.
Subsec. (h)(3)(B)(ii). Pub. L. 100-647, Sec. 1006(d)(26),
inserted ''except as provided in regulations,'' after ''under
clause (i),''.
Subsec. (h)(4). Pub. L. 100-647, Sec. 1006(d)(20), substituted
''allowed as a carryforward'' for ''treated as a net operating
loss'' in heading and inserted ''(or to the extent the amount so
disallowed is attributable to capital losses, under rules similar
to the rules for the carrying forward of net capital losses)''
after ''net operating losses'' in subpar. (A).
Subsec. (h)(5)(A). Pub. L. 100-647, Sec. 1006(d)(3)(B),
substituted ''recognized built-in gains to the extent such gains
increased the section 382 limitation for the year (or recognized
built-in losses to the extent such losses are treated as pre-change
losses)'' for ''recognized built-in gains and losses''.
Subsec. (h)(6). Pub. L. 100-647, Sec. 1006(d)(22), substituted
''Treatment of certain built-in items'' for ''Secretary may treat
certain deductions as built-in losses'' in heading and amended text
generally. Prior to amendment, text read as follows: ''The
Secretary may by regulation treat amounts which accrue on or before
the change date but which are allowable as a deduction after such
date as recognized built-in losses.''
Subsec. (h)(9). Pub. L. 100-647, Sec. 1006(d)(23), substituted
''was acquired (or is subsequently transferred)'' for ''is
transferred''.
Subsec. (i)(3). Pub. L. 100-647, Sec. 1006(d)(4), inserted ''the
earlier of'' after ''not begin before'' and ''or the taxable year
in which the transaction being tested occurs'' after ''1st
post-change year''.
Subsec. (k)(1). Pub. L. 100-647, Sec. 1006(d)(5)(A), inserted
''or having a net operating loss for the taxable year in which the
ownership change occurs'' after ''operating loss carryover''.
Subsec. (k)(2). Pub. L. 100-647, Sec. 1006(d)(5)(B), amended par.
(2) generally. Prior to amendment, par. (2) read as follows: ''The
term 'old loss corporation' means any corporation with respect to
which there is an ownership change -
''(A) which (before the ownership change) was a loss
corporation, or
''(B) with respect to which there is a pre-change loss
described in subsection (d)(1)(B).''
Subsec. (l)(3)(A)(iv), (v). Pub. L. 100-647, Sec. 1006(d)(6),
added cls. (iv) and (v) and struck out former cl. (iv) which read
as follows: ''except to the extent provided in regulations,
paragraph (4) of section 318(a) shall apply to an option if such
application results in an ownership change.''
Subsec. (l)(3)(C)(ii). Pub. L. 100-647, Sec. 5077(a), added
subcl. (III) and concluding provisions.
Subsec. (l)(4)(B)(ii). Pub. L. 100-647, Sec. 1006(t)(22)(A),
substituted ''REMIC'' for ''real estate mortgage pool''.
Subsec. (l)(5)(A)(ii). Pub. L. 100-647, Sec. 1006(d)(25),
substituted ''stock of a controlling corporation'' for ''stock of
controlling corporation''.
Pub. L. 100-647, Sec. 1006(d)(7), substituted ''after such
ownership change and as a result of being shareholders or creditors
immediately before such change'' for ''immediately after such
ownership change''.
Subsec. (l)(5)(B). Pub. L. 100-647, Sec. 1006(d)(27), substituted
''the pre-change losses and excess credits (within the meaning of
section 383(a)(2)) which may be carried to a post-change year shall
be computed'' for ''the net operating loss deduction under section
172(a) for any post-change year shall be determined''.
Subsec. (l)(5)(C). Pub. L. 100-647, Sec. 1006(d)(18), substituted
''tax attributes'' for ''carryforwards'' in heading and amended
text generally. Prior to amendment, text read as follows: ''In any
case to which subparagraph (A) applies, the pre-change losses and
excess credits (within the meaning of section 383(a)(2)) which may
be carried to a post-change year shall be computed as if 50 percent
of the amount which, but for the application of section
108(e)(10)(B), would have been includible in gross income for any
taxable year had been so included.''
Subsec. (l)(5)(E). Pub. L. 100-647, Sec. 1006(d)(19), substituted
''taken into account'' for ''of creditors taken into account'' in
heading and amended introductory provisions generally. Prior to
amendment, introductory provisions read as follows: ''For purposes
of subparagraph (A)(ii), stock transferred to a creditor in
satisfaction of indebtedness shall be taken into account only if
such indebtedness - ''.
Subsec. (l)(5)(F). Pub. L. 100-647, Sec. 4012(a)(3), substituted
''1989'' for ''1988'' in last sentence.
Subsec. (l)(5)(F)(i)(I). Pub. L. 100-647, Sec. 1006(d)(8)(A),
inserted '' '1504(a)(2)(B)' for '1504(a)(2)' and'' after ''by
substituting''.
Subsec. (l)(5)(F)(ii)(III). Pub. L. 100-647, Sec. 1006(d)(8)(B),
substituted ''the amount of deposits in the new loss corporation
immediately after the change'' for ''deposits described in
subclause (II)''.
Subsec. (l)(5)(F)(iii)(I). Pub. L. 100-647, Sec. 4012(b)(1)(B),
inserted ''(as modified by section 368(a)(3)(D)(iv))'' after
''section 368(a)(3)(D)(ii)''.
Pub. L. 100-647, Sec. 1006(d)(29), which directed amendment of
subcl. (I) by substituting ''section 368(a)(3)(D)(ii)'' for
''section 368(a)(D)(ii)'', could not be executed because ''section
368(a)(3)(D)(ii)'' appeared and ''section 368(a)(D)(ii)'' did not
appear.
Subsec. (l)(6). Pub. L. 100-647, Sec. 1006(d)(9), substituted
''shall reflect the increase (if any) in value of the old loss
corporation resulting from any surrender or cancellation of
creditors' claims in the transaction'' for ''shall be the value of
the new loss corporation immediately after the ownership change''.
Subsec. (l)(8). Pub. L. 100-647, Sec. 1006(d)(10), added par.
(8).
Subsec. (m)(4). Pub. L. 100-647, Sec. 1006(d)(1)(C), redesignated
par. (5) as (4) and struck out former par. (4) which read as
follows: ''providing for the treatment of corporate contractions as
redemptions for purposes of subsections (e)(2) and (h)(3)(A),
and''.
Subsec. (m)(5). Pub. L. 100-647, Sec. 1006(d)(24), added par.
(5).
Pub. L. 100-647, Sec. 1006(d)(1)(C), redesignated former par. (5)
as (4).
1987 - Subsec. (g)(4)(D). Pub. L. 100-203, Sec. 10225(a), added
subpar. (D).
Subsec. (h)(2)(B). Pub. L. 100-203, Sec. 10225(b), inserted at
end ''Such term includes any amount allowable as depreciation,
amortization, or depletion for any period within the recognition
period except to the extent the new loss corporation establishes
that the amount so allowable is not attributable to the excess
described in clause (ii).''
1986 - Pub. L. 99-514, Sec. 621(a), in amending section
generally, in subsec. (a), substituted provisions setting forth
general rule that amount of taxable income of any new loss
corporation for any post-change year which may be offset by
pre-change losses shall not exceed section 382 limitation for such
year for provisions relating to change in ownership of corporation
and change in its business, description of persons owning
corporation, attribution of ownership, and definition of
''purchase'', in subsec. (b), substituted provisions relating to
section 382 limitation for provisions relating to change in
ownership as result of reorganization, in subsec. (c), substituted
provisions relating to disallowance of carryforwards if continuity
of business requirements are not met for provisions defining stock
as all shares except nonvoting stock which is limited and preferred
as to dividends, and added subsecs. (d) to (m).
Pub. L. 99-514, Sec. 621(e)(1), repealed amendment by Pub. L.
94-455, Sec. 806(e). See 1976 Amendment note below.
1984 - Subsec. (b)(1). Pub. L. 98-369, in section as amended by
Pub. L. 94-455, substituted ''subparagraph (A), (B), (C), or (F) of
section 368(a)(1) or subparagraph (D) or (G) of section 368(a)(1)
(but only if the requirements of section 354(b)(1) are met)'' for
''section 368(a)(1)(A), (B), (C), (D) (but only if the requirements
of section 354(b)(1) are met, or (F)''.
1981 - Subsec. (b)(7). Pub. L. 97-34 designated existing
provisions as subpar. (A) and added subpar. (B).
1980 - Subsec. (b)(7). Pub. L. 96-589 added par. (7).
1976 - Pub. L. 94-455, Sec. 806(e), which amended section
generally, substituting provisions relating to special limitations
on net operating loss carryovers based on continuity of trade or
business conducted, for provisions relating to special limitations
on net operating loss carryovers based on continuity of ownership,
was repealed by Pub. L. 99-514, Sec. 621(e)(1). See Effective Date
of 1986 and 1976 Amendment notes below.
1964 - Subsec. (a)(3). Pub. L. 88-554 inserted reference to
section 318(a)(3)(C) of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 effective Sept. 1, 1997, see section
1621(d) of Pub. L. 104-188, set out as a note under section 26 of
this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable to stock transferred after
Dec. 31, 1994, in satisfaction of any indebtedness, except that
such amendment inapplicable to stock transferred in satisfaction of
any indebtedness if such transfer is in a title 11 or similar case
filed on or before Dec. 31, 1993, see section 13226(a)(3) of Pub.
L. 103-66, set out as a note under section 108 of this title.
EFFECTIVE DATE OF 1989 AMENDMENTS
Amendment by section 7205(a) of Pub. L. 101-239 applicable,
except as otherwise provided, to ownership changes and acquisitions
after Oct. 2, 1989, in taxable years ending after such date, see
section 7205(c) of Pub. L. 101-239, set out as a note under section
56 of this title.
Section 7304(d)(2) of Pub. L. 101-239 provided that: ''The
amendments made by this subsection (amending this section) shall
apply to acquisitions of employer securities after July 12, 1989,
except that such amendments shall not apply to acquisitions after
July 12, 1989, pursuant to a written binding contract in effect on
July 12, 1989, and at all times thereafter before such
acquisition.''
Amendment by sections 7811(c)(5)(A) and 7815(h) of Pub. L.
101-239 effective, except as otherwise provided, as if included in
the provision of the Technical and Miscellaneous Revenue Act of
1988, Pub. L. 100-647, to which such amendment relates, see section
7817 of Pub. L. 101-239, set out as a note under section 1 of this
title.
Section 1401(c)(2) of Pub. L. 101-73 provided that: ''The
amendment made by subsection (a)(2) (amending this section) shall
apply to transactions on or after May 10, 1989.''
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1006(d)(1)(D) of Pub. L. 100-647 provided that: ''The
amendments made by this paragraph (amending this section) shall
apply with respect to ownership changes after June 10, 1987.''
Section 1006(d)(17)(B) of Pub. L. 100-647 provided that: ''The
amendment made by subparagraph (A) (amending this section) shall
apply to any ownership change after June 10, 1987. For purposes of
the preceding sentence, any equity structure shift pursuant to a
plan of reorganization adopted on or before June 10, 1987, shall be
treated as occurring when such plan was adopted.''
Section 1006(d)(28)(B) of Pub. L. 100-647 provided that: ''The
amendment made by subparagraph (A) (amending this section) shall
apply in the case of ownership changes on or after June 21, 1988.''
Amendment by section 1006(d)(2)-(10), (18)-(27), (29), (t)(22)(A)
of Pub. L. 100-647 effective, except as otherwise provided, as if
included in the provision of the Tax Reform Act of 1986, Pub. L.
99-514, to which such amendment relates, see section 1019(a) of
Pub. L. 100-647, set out as a note under section 1 of this title.
Section 4012(b)(1)(C)(ii) of Pub. L. 100-647 provided that: ''The
amendment made by subparagraph (B) (amending this section) shall
apply to any ownership change occurring after the date of the
enactment of this Act (Nov. 10, 1988) and before January 1, 1990.''
Section 5077(b) of Pub. L. 100-647 provided that:
''(1) In General. - The amendment made by subsection (a)
(amending this section) shall apply to acquisition after December
31, 1988.
''(2) Exception. - The amendment made by subsection (a) shall not
apply to acquisitions after December 31, 1988, pursuant to a
binding written contract entered into on or before October 21,
1988.''
EFFECTIVE DATE OF 1987 AMENDMENT
Section 10225(c) of Pub. L. 100-203 provided that:
''(1) Subsection (a). - The amendment made by subsection (a)
(amending this section) shall apply in the case of stock treated as
becoming worthless in taxable years beginning after December 31,
1987.
''(2) Subsection (b). - The amendment made by subsection (b)
(amending this section) shall apply in the case of ownership
changes (as defined in section 382 of the Internal Revenue Code of
1986 as amended by subsection (a)) after December 15, 1987; except
that such amendment shall not apply in the case of any ownership
change pursuant to a binding written contract which was in effect
on December 15, 1987, and at all times thereafter before such
ownership change.''
EFFECTIVE DATE OF 1986 AMENDMENT; SAVINGS PROVISIONS
Section 621(f) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1006(d)(11)-(16), title VI, Sec. 6277(a), (b), Nov.
10, 1988, 102 Stat. 3397, 3398, 3753, 3754, provided that:
''(1) Amendments made by subsections (a), (b), and (c). -
''(A) In general. -
''(i) Changes after 1986. - The amendments made by
subsections (a), (b), and (c) (amending this section and
sections 318 and 383 of this title) shall apply to any
ownership change after December 31, 1986.
''(ii) Plans of reorganization adopted before 1987. - For
purposes of clause (i), any equity structure shift pursuant to
a plan of reorganization adopted before January 1, 1987, shall
be treated as occurring when such plan was adopted.
''(B) Termination of old section 382. - Except in a case
described in any of the following paragraphs -
''(i) section 382(a) of the Internal Revenue Code of 1954 (as
in effect before the amendment made by subsection (a) and the
amendments made by section 806 of the Tax Reform Act of 1976
(section 806 of Pub. L. 94-455)) shall not apply to any
increase in percentage points occurring after December 31,
1988, and
''(ii) section 382(b) of such Code (as so in effect) shall
not apply to any reorganization occurring pursuant to a plan of
reorganization adopted after December 31, 1986.
In no event shall sections 382(a) and (b) of such Code (as so in
effect) apply to any ownership change described in subparagraph
(A).
''(C) Coordination with section 382(i). - For purposes of
section 382(i) of the Internal Revenue Code of 1986 (as added by
this section), any equity structure shift pursuant to a plan of
reorganization adopted before January 1, 1987, shall be treated
as occurring when such plan was adopted.
''(2) For amendments to tax reform act of 1976. -
''(A) In general. - The repeals made by subsection (e)(1)
(repealing amendments by Pub. L. 94-455, Sec. 806(e), (f),
amending this section and sections 108, 368, and 383 of this
title) and the amendment made by subsection (e)(2) (repealing
section 806(g)(2), (3) of Pub. L. 94-455, formerly set out as an
Effective Date of 1976 Amendment note below) shall take effect on
January 1, 1986.
''(B) Election to have amendments apply. -
''(i) If a taxpayer described in clause (ii) elects to have
the provisions of this subparagraph apply, the amendments made
by subsections (e) and (f) of section 806 of the Tax Reform Act
of 1976 (amending this section and sections 108, 368, and 383
of this title) shall apply to the reorganization described in
clause (ii).
''(ii) A taxpayer is described in this clause if the taxpayer
filed a title 11 or similar case on December 8, 1981, filed a
plan of reorganization on February 5, 1986, filed an amended
plan on March 14, 1986, and received court approval for the
amended plan and disclosure statement on April 16, 1986.
''(C) Application of old rules to certain debt. - In the case
of debt of a corporation incorporated in Colorado on November 8,
1924, and reincorporated in Delaware in 1987, with headquarters
in Denver, Colorado -
''(i) the amendments made by subsections (a), (b), and (c)
shall not apply to any debt restructuring of such debt which
was approved by the debtor's Board of Directors and the lenders
in 1986, and
''(ii) the amendments made by subsections (e) and (f) of
section 806 of the Tax Reform Act of 1976 shall not apply to
such debt restructuring, except that the amendment treated as
part of such subsections under section 59(b) of the Tax Reform
Act of 1984 (relating to qualified workouts) shall apply to
such debt restructuring.
''(D) Special rule for oil and gas well drilling business. - In
the case of a Texas corporation incorporated on July 23, 1935, in
applying section 382 of the Internal Revenue Code of 1986 (as in
effect before and after the amendments made by subsections (a),
(b), and (c)) to a loan restructuring agreement during 1985,
section 382(a)(5)(C) of the Internal Revenue Code of 1954 (as
added by the amendments made by subsections (e) and (f) of
section 806 of the Tax Reform Act of 1976) shall be applied as if
it were in effect with respect to such restructuring. For
purposes of the preceding sentence, in applying section 382 (as
so in effect), if a person has a warrant to acquire stock, such
stock shall be considered as owned by such person.
''(3) Testing period. - For purposes of determining whether there
is an ownership change, the testing period shall not begin before
the later of -
''(A) May 6, 1986, or
''(B) in the case of an ownership change which occurs after May
5, 1986, and to which the amendments made by subsections (a),
(b), and (c) do not apply, the first day following the date on
which such ownership change occurs.
''(4) Special transition rules. - The amendments made by
subsections (a), (b), and (c) shall not apply to any -
''(A) stock-for-debt exchanges and stock sales made pursuant to
a plan of reorganization with respect to a petition for
reorganization filed by a corporation under chapter 11 of title
11, United States Code, on August 26, 1982, and which filed with
a United States district court a first amended and related plan
of reorganization before March 1, 1986, or
''(B) ownership change of a Delaware corporation incorporated
in August 1983, which may result from the exercise of put or call
option under an agreement entered into on September 14, 1983, but
only with respect to taxable years beginning after 1991
regardless of when such ownership change takes place.
Any regulations prescribed under section 382 of the Internal
Revenue Code of 1986 (as added by subsection (a)) which have the
effect of treating a group of shareholders as a separate 5-percent
shareholder by reason of a public offering shall not apply to any
public offering before January 1, 1989, for the benefit of
institutions described in section 591 of such Code. Unless the
corporation otherwise elects, an underwriter of any offering of
stock in a corporation before September 19, 1986 (January 1, 1989,
in the case of an offering for the benefit of an institution
described in the preceding sentence), shall not be treated as
acquiring any stock of such corporation by reason of a firm
commitment underwriting to the extent the stock is disposed of
pursuant to the offering (but in no event later than 60 days after
the initial offering).
''(5) Bankruptcy proceedings. - Unless the taxpayer elects not to
have the provisions of this paragraph apply, in the case of a
reorganization described in subparagraph (G) of section 368(a)(1)
of the Internal Revenue Code of 1986 or an exchange of debt for
stock in a title 11 or similar case, as defined in section
368(a)(3) of such Code, the amendments made by subsections (a),
(b), and (c) shall not apply to any ownership change resulting from
such a reorganization or proceeding if a petition in such case was
filed with the court before August 14, 1986. The determination as
to whether an ownership change has occurred during the period
beginning January 1, 1987, and ending on the final settlement of
any reorganization or proceeding described in the preceding
sentence shall be redetermined as of the time of such final
settlement.
''(6) Certain plans. - The amendments made by subsections (a),
(b), and (c) shall not apply to any ownership change with respect
to -
''(A) the acquisition of a corporation the stock of which is
acquired pursuant to a plan of divestiture which identified such
corporation and its assets, and was agreed to by the board of
directors of such corporation's parent corporation on May 17,
1985,
''(B) a merger which occurs pursuant to a merger agreement
(entered into before September 24, 1985) and an application for
approval by the Federal Home Loan Bank Board was filed on October
4, 1985,
''(C) a reorganization involving a party to a reorganization of
a group of corporations engaged in enhanced oil recovery
operations in California, merged in furtherance of a plan of
reorganization adopted by a board of directors vote on September
24, 1985, and a Delaware corporation whose principal oil and gas
producing fields are located in California, or
''(D) the conversion of a mutual savings and loan association
holding a Federal charter dated March 22, 1985, to a stock
savings and loan association pursuant to the rules and
regulations of the Federal Home Loan Bank Board.
''(7) Ownership change of regulated air carrier. - The amendments
made by subsections (a), (b), and (c) shall not apply to an
ownership change of a regulated air carrier if -
''(A) on July 16, 1986, at least 40 percent of the outstanding
common stock (excluding all preferred stock, whether or not
convertible) of such carrier had been acquired by a parent
corporation incorporated in March 1980 under the laws of
Delaware, and
''(B) the acquisition (by or for such parent corporation) or
retirement of the remaining common stock of such carrier is
completed before the later of March 31, 1987, or 90 days after
the requisite governmental approvals are finally granted,
but only if the ownership change occurs on or before the later of
March 31, 1987, or such 90th day. The aggregate reduction in tax
for any taxable year by reason of this paragraph shall not exceed
$10,000,000. The testing period for determining whether a
subsequent ownership change has occurred shall not begin before the
1st day following an ownership change to which this paragraph
applies.
''(8) The amendments made by subsections (a), (b), and (c) shall
not apply to any ownership change resulting from the conversion of
a Minnesota mutual savings bank holding a Federal charter dated
December 31, 1985, to a stock savings bank pursuant to the rules
and regulations of the Federal Home Loan Bank Board, and from the
issuance of stock pursuant to that conversion to a holding company
incorporated in Delaware on February 21, 1984. For purposes of
determining whether any ownership change occurs with respect to the
holding company or any subsidiary thereof (whether resulting from
the transaction described in the preceding sentence or otherwise),
any issuance of stock made by such holding company in connection
with the transaction described in the preceding sentence shall not
be taken into account.
''(9) Definitions. - Except as otherwise provided, terms used in
this subsection shall have the same meaning as when used in section
382 of the Internal Revenue Code of 1986 (as amended by this
section).''
(Section 6277(c) of Pub. L. 100-647 provided that: ''The
amendments made by this section (amending section 621(f) of Pub. L.
99-514, set out above) shall take effect as if included in section
621(f)(5) of the Tax Reform Act of 1986 (Pub. L. 99-514).'')
EFFECTIVE DATE OF 1984 AMENDMENT
Section 62(b)(2) of Pub. L. 98-369 provided that: ''The amendment
made by paragraph (1) (amending this section) shall take effect as
if included in the amendments made by section 4 of the Bankruptcy
Tax Act of 1980 (Pub. L. 96-589).''
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by Pub. L. 97-34 applicable to any transfer made on or
after Jan. 1, 1981, see section 246(a) of Pub. L. 97-34, set out as
a note under section 368 of this title.
EFFECTIVE DATE OF 1980 AMENDMENT
Section 2(d) of Pub. L. 96-589 provided that the amendment made
by section 2(b) of Pub. L. 96-589 is to subsec. (b) as in effect
before its amendment by section 806 of the Tax Reform Act of 1976,
Pub. L. 94-455.
Amendment by Pub. L. 96-589 applicable to transactions which
occur after Dec. 31, 1980, other than transactions which occur in a
proceeding in a bankruptcy case or similar judicial proceeding or
in a proceeding under Title 11 commencing on or before Dec. 31,
1980, with an exception permitting the debtor to make the amendment
applicable to transactions occurring after Sept. 30, 1979, in a
specified manner, see section 7(a)(1), (f) of Pub. L. 96-589, set
out as a note under section 108 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 806(g)(2), (3) of Pub. L. 94-455, as amended by Pub. L.
95-600, title III, Sec. 368(a), Nov. 6, 1978, 92 Stat. 2857; Pub.
L. 95-615, Sec. 8, Nov. 8, 1978, 92 Stat. 3098; Pub. L. 96-167,
Sec. 9(e), Dec. 29, 1979, 93 Stat. 1279; Pub. L. 97-119, title I,
Sec. 111, Dec. 29, 1981, 95 Stat. 1640; Pub. L. 98-369, div. A,
title I, Sec. 62(a), July 18, 1984, 98 Stat. 583, which provided an
effective date for the amendments made by section 806(e), (f) of
Pub. L. 94-455 for purposes of applying sections 382(a) and 383 (as
it relates to section 382(a)) of this title, was repealed by Pub.
L. 99-514, title VI, Sec. 621(e)(2), (f)(2), Oct. 22, 1986, 100
Stat. 2266, eff. Jan. 1, 1986.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-554 effective Aug. 31, 1964, except that
for purposes of sections 302 and 304 of this title, such amendment
shall not apply to distributions in payment for stock acquisitions
or redemptions, if such acquisitions or redemptions occurred before
Aug. 31, 1964, see section 4(c) of Pub. L. 88-554, set out as a
note under section 318 of this title.
DELAY IN EFFECTIVE DATE OF 1976 AMENDMENT
Pub. L. 95-600, title III, Sec. 368, Nov. 6, 1978, 92 Stat. 2857,
provided for delaying the effective date established by section
806(g)(2), (3) of Pub. L. 94-455, formerly set out above, by
substituting ''1980'' for ''1978'', with certain elections.
REPORT ON DEPRECIATION AND BUILT-IN DEDUCTIONS; REPORT ON
BANKRUPTCY WORKOUTS
Section 621(d) of Pub. L. 99-514 directed Secretary of the
Treasury or his delegate to, not later than Jan. 1, 1989, conduct a
study and report to Committee on Ways and Means of House of
Representatives and Committee on Finance of Senate with respect to
treatment of depreciation, amortization, depletion, and other
built-in deductions for purposes of sections 382 and 383 of this
title, and, not later than Jan. 1, 1988, conduct a study and report
to committees referred to above with respect to treatment of
informal bankruptcy workouts for purposes of sections 108 and 382
of this title, prior to repeal by Pub. L. 101-508, title XI, Sec.
11832(3), Nov. 5, 1990, 104 Stat. 1388-559.
References
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 56, 172, 318, 383, 384 of
this title.
