Page:United States Statutes at Large Volume 85.djvu/577

 85 STAT. ]

PUBLIC LAW 92-178-DEC. 10, 1971

547

"SEC. 996. RULES FOR ALLOCATION IN THE CASE OF DISTRIBUTIONS AND LOSSES. " (a) RULES FOR ACTUAL DISTRIBUTIONS AND CERTAIN DEEMED DISTRIBUTIONS.—

"(1) IN GENERAL.—Any actual distribution (other than a distribution described in paragraph (2) or to which section 995(c) applies) to a shareholder by a D I S C (or former D I S C) which is made out of earnings and profits shall be treated as made— " (A) first, out of previously taxed income, to the extent thereof, " (B) second, out of accumulated D I S C income, to the extent thereof, and " (C) finally, out of other earnings and profits. " (2) QUALIFYING

DISTRIBUTIONS.—Any

actual

distribution

made pursuant to section 992(c) (relating to distributions to meet qualification requirements), and any deemed distribution pursuant to section 9 9 5 (b)(1)(E) (relating to foreign investment attributable to producer's loans), shall be treated as made— " (A) first, out of accumulated D I S C income, to the extent thereof, " (B) second, out of the earnings and profits described in paragraph (1)(C), to the extent thereof, and " (C) finally, out of previously taxed income. " (3) EXCLUSION FROM GROSS INCOME.—Amounts distributed out of previously taxed income shall be excluded by the distributee from gross income except for gains described in subsection (e)(2), and shall reduce the amount of the previously taxed income. " (b) ORDERING RULES FOR LOSSES.—If for any taxable year a D I S C, or a former D I S C, incurs a deficit in earnings and profits, such deficit shall be chargeable— "(1) first, to earnings and profits described in subsection (a)(1)(C), to the extent thereof, "(2) second, to accumulated D I S C income, to the extent thereof, and "(3) finally, to previously taxed income, except that a deficit in earnings and profits shall not be applied against accumulated D I S C income which has been determined is to be deemed distributed to the shareholders (pursuant to section 995(b)(2)(A)) as a result of a revocation of election or other disqualification. "(c) PRIORITY OF DISTRIBUTIONS.—Any actual distribution made during a taxable year shall be treated as being made subsequent to any deemed distribution made during such year. Any actual distribution made pursuant to section 992(c) (relating to distributions to meet qualification requirements) shall be treated as being made before any other actual distributions during the taxable year. " (d) SUBSEQUENT EFFECT OF PREVIOUS DISPOSITION OF D I S C STOCK.— " (1) SHAREHOLDER PREVIOUSLY TAXED INCOME ADJUSTMENT.—

If— " (A) gain with respect to a share of stock of a D I S C or former D I S C is treated under section 995(c) as a dividend or as gain from the sale or exchange of property which is not a capital asset, and " (B) any person subsequently receives an actual distribution maide out of accumulated D I S C income, or a deemed distribution made pursuant to section 995(b)(2), with respect to such share, 75-432 O - 72 - 37

^"'^' P* S'^'*-

^n^e, p. 535.

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