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INTERNAL REVENUE CODE OF 1954 the amount which is a dividend shall be made solely by reference to the earnings and profits of the acquiring corporation. (B) W H E R E SUBSECTION (a)(2) APPLIES.—In the case of any acquisition of stock to which subsection (a)(2) of this section applies, the determination of the amount which is a dividend shall be made as if the property were distributed by the acquiring corporation to the issuing corporation and immediately thereafter distributed by the issuing corporation,

(c)

CONTROL.—

(1) IN GENERAL.^—For purposes of this section, control means the ownership of stock possessing at least 50 percent of the total combined voting power of all classes of stock entitled to vote, or at least 50 percent of the total value of shares of all classes of stock. If a person (or persons) is in control (within the meaning of the preceding sentence) of a corporation which in turn owns at least 50 percent of the total combined voting power of all stock entitled to vote of another corporation, or owns at least 50 percent of the total value of the shares of all classes of stock of another corporation, then such person (or persons) shall be treated as in control of such other corporation. (2) CONSTRUCTIVE OWNERSHIP.—Section 318(a) (relating to the

constructive ownership of stock) shall apply for purposes of determining control under paragraph (1). For purposes of the preceding sentence, section 318(a)(2)(C) shall be applied without regard to the 50 percent limitation contained therein. SEC. 305. DISTRIBUTIONS OF STOCK AND STOCK RIGHTS. (a) GENERAL RULE. — E x c e p t as provided in subsection (b), gross

income does not include the amount of any distribution made by a corporation to its shareholders, with respect to the stock of such corporation, in its stock or in rights to acquire its stock. (b) DISTRIBUTIONS IN L I E U OF MONEY.—Subsection (a) shall not apply to a distribution by a corporation of its stock (or rights to acquire its stock), and the distribution shall be treated as a distribution of property to which section 301 applies— (1) to the extent that the distribution is made in discharge of preference dividends for the taxable year of the corporation in which the distribution is made or for the preceding taxable year; or (2) if the distribution is, at the election of any of the shareholders (whether exercised before or after the declaration thereof), payable either— (A) in its stock (or in rights to acquire its stock), or (B) in property. (c) CROSS REFERENCES.—• For special rules— (1) Relating to the receipt of stock and stock rights in corporate organizations and reorganizations, see part III (sec. 351 and following). (2) In the case of a distribution which results in a gift, see section 2501 and following. (3) In the case of a distribution which has the effect of the payment of compensation, see section 61(a)(1). SEC. 306. DISPOSITIONS OF CERTAIN STOCK. (a) GENERAL RULE. — I f a shareholder sells or otherwise disposes

of section 306 stock (as defined in subsection (c))— § 304(b)(2)(A)

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