Page:United States Statutes at Large Volume 102 Part 4.djvu/433

 PUBLIC LAW 100-647—NOV. 10, 1988

102 STAT. 3403

(16) Subsection (d) of section 245 of the 1986 Code is hereby (17) Paragraph (14) of section 1223 of the 1986 Code is amended to read as follows: "(14) CROSS REFERENCE.— "For special holding period provision relating to certain partnership distributions, see section 735(b)."

(18) Clause (ii) of section 341(e)(l)(C) of the 1986 Code is amended— (A) by striking out "sale or exchange" the first place it appears and inserting in lieu thereof "liquidating sale or exchange", and (B) by striking out ", gain or loss on which was not recognized to such other corporation under section 337(a),". (19) Subsection (1) of section 897 of the 1986 Code is hereby I*613Gd.l6Q

(20) Paragraph (7) of section 338(h) of the 1986 Code is hereby (21)(A) The heading of subsection (b) of section 336 of the 1986 Code is amended by striking out " I N EXCESS OF BASIS". (B) The heading of paragraph (2) of section 311(b) of the 1986 Code is amended by striking out " I N EXCESS OF BASIS". (22) Section 453B of the 1986 Code is amended by adding at the end thereof the following new subsection: "(h) CERTAIN LIQUIDATING DISTRIBUTIONS BY S CORPORATIONS.—

If— "(1) an installment obligation is distributed by an S corporation in a complete liquidation, and "(2) receipt of the obligation is not treated as payment for the stock by reason of section 453(h)(l), then, except for purposes of any tax imposed by subchapter S, no gain or loss with respect to the distribution of the obligation shall be recognized by the distributing corporation. Under regulations prescribed by the Secretary, the character of the gain or loss to the shareholder shall be determined in accordance with the principles of section 1366(b)." (f) AMENDMENTS RELATED TO SECTION 632 OF THE REFORM ACT.—

(1) Subsection (a) of section 1374 of the 1986 Code is amended by striking out "a recognized built-in gain" and inserting in lieu thereof "a net recognized built-in gain. (2) Subsection (b) of section 1374 of the 1986 Code is amended by striking out paragraphs (1) and (2) and inserting in lieu thereof the following: "(1) IN GENERAL.—The amount of the tax imposed by subsection (a) shall be computed by applying the highest rate of tax specified in section 11(b) to the net recognized built-in gain of the S corporation for the taxable year. "(2) NET OPERATING LOSS CARRYFORWARDS FROM C YEARS AL-

LOWED.—Notwithstanding section 1371(b)(l), any net operating loss carryforward arising in a taxable year for which the corporation was a C corporation shall be allowed for purposes of this section as a deduction against the net recognized built-in gain of the S corporation for the taxable year. For purposes of determining the amount of any such loss which may be carried to subsequent taxable years, the amount of the net recognized built-in gain shall be treated as taxable income. Rules similar to

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