Page:United States Statutes at Large Volume 100 Part 3.djvu/444

 100 STAT. 2252

PUBLIC LAW 99-514—OCT. 22, 1986

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(1) IN' GENERAL.—Section 1059(a) (relating to corporate shareholder's basis in stock reduced by nontaxed portion of extraordinary dividends) is amended to read as follows: "(a) GENERAL RULE.—If any corporation receives any extraordinary dividend with respect to any share of stock and such corporation has not held such stock for more than 2 years before the dividend announcement date— "(1) REDUCTION IN BASIS.—The basis of such corporation in such stock shall be reduced (but not below zero) by the nontaxed portion of such dividends. "(2) RECOGNinoN UPON SALE OR DISPOSITION IN CERTAIN CASES.—In additivon to any gain recognized under this chapter, there shall be treated as gain from the sale or exchange of any stock for the taxable year in which the sale or disposition of such stock occurs Q.n amount equal to the aggregate nontaxed portions of any extraordinary dividends with respect to such stock which did not reduce the basis of such stock by reason of the limitation on reducing basis below zero." (2) DIVIDEND ANNOUNCEMENT DATE.—Section 1059(d) (relating to special rules) is amended by adding at the end thereof the following new paragraph: "(6) DIVIDEND ANNOUNCEMENT DATE.—The term 'dividend announcement date' means, with respect to any dividend, the date on which the corporation declares, announces, or agrees to the payment of such dividand, whichever is the earliest." (3) CONFORMING AMENDMENT.—Section 1059(d)(3) (relating to determination of holding period) is amended by striking out "1 year" and inserting in lieu thereof "2 years". Qo) EXTRAORDINARY DIVIDEND M A Y B E DETERMINED BY REFERENCE

TO FAIR MARKET VALUE.—Section 1059(c) (defining extraordinary

dividend) is amended by adding a t the end thereof the following new paragraph: "(4) FAIR MARKET VALUE DETERMINATION.—If the

taxpayer

establishes to the satisfaction of the Secretary the fair market value of any share of stock as of the day before the ex-dividend date, the taxpayer may elect to apply paragraphs (1) and (3) by substituting such value for the taxpayer's adjusted basis." (c) TIME FOR REDUCTION IN BASIS.—

(1) IN GENERAL.—Paragraph (1) of section 1059(d) (relating to time for reduction) is amended to read as follows: "(1) TIME FOR REDUCTION.—

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"(A) IN GENERAL.—Except as provided in subparagraph (B), any reduction in basis under subsection (a)(1) shall occur immediately before any sale or disposition of the stock. "(B) SPECIAL RULE FOR COMPUTING EXTRAORDINARY DIVI-

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DEND.—In determining a taxpayer's adjusted basis for purposes of subsection (c)(D, any reduction in basis under subsection (a)(1) by reason of a prior distribution which was an extraordinary dividend shall be treated as occurring at the beginning of the ex-dividend date for such distribution." (2) CONFORMING AMENDMENT.—Section 1059(c)(l) is amended by striking out "(determined without regard to this section)".

(d) No EXTRAORDINARY DIVIDEND WHERE STOCK HELD DURING ENTIRE EXISTENCE OF CORPORATION.—Section 1059(d) (relating to

special rules) is amended by adding at the end thereof the following new paragraph:

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