Page:United States Statutes at Large Volume 101 Part 2.djvu/1208

 101 STAT. 1330-414

PUBLIC LAW 100-203—DEC. 22, 1987

SEC. 10226. LIMITATION ON USE OF PREACQUISITION LOSSES TO OFFSET BUILT-IN GAINS.

(a) GENERAL RULE.—Part V of subchapter C of chapter 1 (relating to carryovers) is amended by adding at the end thereof the following new section: 26 USC 384.

"SEC. 384. LIMITATION ON USE OF PREACQUISITION LOSSES TO OFFSET BUILT-IN GAINS. "(a) GENERAL RULE.— "(1) STOCK ACQUISITIONS, ETC.—If—

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"(A) a corporation (hereinafter in this section referred to as the 'gain corporation') becomes a member of an affiliated "(B) such corporation has a net unrealized built-in gain, the income of such corporation for any recognition period taxable year (to the extent attributable to recognized built-in gains) shall not be offset by any preacquisition loss of any other member of such group. "(2) ASSET ACQUISITIONS.—If—

"(A) the assets of a corporation (hereinafter in this section referred to as the 'gain corporation') are acquired by another corporation— "(i) in a liquidation to which section 332 applies, or "(ii) in a reorganization described in subparagraph (A), (C), or (D) of section 368(a)(l), and "(B) the gain corporation has a net unrealized built-in gain, the income of the acquiring corporation for any recognition period taxable year (to the extent attributable to recognized built-in gains of the gain corporation) shall not be offset by any preacquisition loss of any corporation (other than the gain corporation). "(b) EXCEPTION WHERE 50 PERCENT OF GAIN CORPORATION HELD.—

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Subsection (a) shall not apply if more than 50 percent of the stock (by vote and value) of the gain corporation was held throughout the 5-year period ending on the acquisition date— (1) in any case described in subsection (a)(D, by members of the affiliated group referred to in subsection (a)(1), or "(2) in any case described in subsection (a)(2), by the acquiring corporation or members of such acquiring corporation's affiliated group. For purposes of the preceding sentence, stock described in section 1504(a)(4) shall not be taken into account. "(c) DEFINITIONS.—For purposes of this section— "(1)RECOGNIZED BUILT-IN GAIN.— u^^^ jj^ GENERAL.—The term 'recognized built-in gain' means any gain recognized during the recognition period on the disposition of any asset except to the extent the gain corporation (or, in any case described in subsection (a)(2), the acquiring corporation) establishes that— (i) such asset was not held by the gain corporation on the acquisition date, or "(ii) such gain exceeds the excess (if any) of— "(I) the fair market value of such asset on the acquisition date, over '(II) the adjusted basis of such asset on such date.

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