Page:United States Statutes at Large Volume 68A.djvu/134

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INTERNAL REVENUE CODE OF 1954

(B) the fair market value of such rights at the time of the distribution is less than 15 percent of the fair market value of the old stock at such time, then subsection (a) shall not apply and the basis of such rights shall be zero, unless the taxpayer elects under paragraph (2) of this subsection to determine the basis of the old stock and of the stock rights under the method of allocation provided in subsection (a). (2) ELECTION.—The election referred to in paragraph (1) shall be made in the return filed within the time prescribed by law (including extensions thereof) for the taxable year in which such rights were received. Such election shall be made in such manner as the Secretary or his delegate may by regulations prescribe, and shall be irrevocable when made, (c) CROSS REFERENCE.—• For basis of stock and stock rights distributed before June 22, 1954, see section 1052.

Subpart B—Effects on Corporation Sec. 311. Taxability of corporation on distribution. Sec. 312. Effect on earnings and profits. SEC. 311. TAXABILITY OF CORPORATION ON DISTRIBUTION. (a) GENERAL RULE. — E x c e p t as provided in subsections (b) and

(c) of this section and section 453(d), no gain or loss shall be recognized to a corporation on the distribution, with respect to its stock, of— _ (1) its stock (or rights to acquire its stock), or (2) property. (b) L I F O INVENTORY.— (1) RECOGNITION OF GAIN.—If a corporation inventorying goods

under the method provided in section 472 (relating to last-in, first-* out inventories) distributes inventory assets (as defined in paragraph (2)(A)), then the amount (if any) by which— (A) the inventory amount (as defined in paragraph (2)(B)) of such assets under a method authorized by section 471 (relating to general rule for inventories), exceeds (B) the inventory amount of such assets under the method provided in section 472, shall be treated as gain to the corporation recognized from the sale of such inventory assets. (2) DEFINITIONS.—For purposes of paragraph (1)— (A) INVENTORY ASSETS.—The term "inventory assets" means stock in trade of the corporation, or other property of a kind which would properly be included in the inventory of the corporation if on hand at the close of the taxable year. (B) INVENTORY AMOUNT.—The term "inventory amount" means, in the case of inventory assets distributed during a taxable year, the amount of such inventory assets determined as if the taxable year closed at the time of such distribution. (3) M E T H O D OF DETERMINING INVENTORY AMOUNT.—For purposes of this subsection, the inventory amount of assets under a method authorized by section 471 shall be determined— § 307(b)(1)(B)

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