Page:United States Statutes at Large Volume 94 Part 3.djvu/747

 PUBLIC LAW 96-589—DEC. 24, 1980

94 STAT. 3391

the loss for the taxable year of the discharge and then in the carryovers to such taxable year in the order of the taxable years from which each such carryover arose. "(C)

REDUCTIONS UNDER SUBPARAGRAPHS (B) AND (E) OF

PARAGRAPH (2).—The reductions described in subparagraphs (B) and (E) of paragraph (2) shall be made in the order in which carryovers are taken into account under this chapter for the taxable year of the discharge. "(5) ELECTION TO APPLY REDUCTION FIRST AGAINST DEPRECIABLE PROPERTY.—

"(A) IN GENERAL.—The taxpayer may elect to apply any portion of the reduction referred to in paragraph (1) to the reduction under section 1017 of the basis of the depreciable ^°*^' P- ^^^^• property of the taxpayer. "(B) LIMITATION.—The amount to which an election under subparagraph (A) applies shall not exceed the aggregate adjusted bases of the depreciable property held by the taxpayer as of the beginning of the taxable year following the taxable year in which the discharge occurs. "(C) OTHER TAX ATTRIBUTES NOT REDUCED.—Paragraph (2)

shall not apply to any amount to which an election under this paragraph applies. "(c) TAX TREATMENT OF DISCHARGE OF QUALIFIED BUSINESS INDEBT-

EDNESS.—In the case of a discharge of qualified business indebtedness— "(1) BASIS REDUCTION.—

"(A) IN GENERAL.—The amount excluded from gross income under subparagraph (C) of subsection (a)(1) shall be applied to reduce the basis of the depreciable property of the taxpayer. "(B) CROSS REFERENCE.— "For provisions for making the reduction described in subparagraph (A), see section 1017.

"(2) LIMITATION.—The amount excluded under subparagraph (C) of subsection (a)(1) shall not exceed the aggregate adjusted bases of the depreciable property held by the taxpayer as of the beginning of the taxable year following the taxable year in which the discharge occurs (determined after any reductions under subsection (b)). "(d) MEANING OF TERMS; SPECIAL RULES RELATING TO SUBSECTIONS (a), 0)), AND (c).— "(1) INDEBTEDNESS OF TAXPAYER.—For purposes of this section,

the term 'indebtedness of the taxpayer' means any indebtedness— "(A) for which the taxpayer is liable, or "(B) subject to which the taxpayer holds property. "(2) TITLE l i CASE.—For purposes of this section, the term 'title 11 case' means a case under title 11 of the United States Code n USC lOi (relating to bankruptcy), but only if the taxpayer is under the ^^ *^9 jurisdiction of the court in such case and the discharge of indebtedness is granted by the court or is pursuant to a plan approved by the court. '(3) INSOLVENT.—For purposes of this section, the term 'insolvent' means the excess of liabilities over the fair market value of assets. With respect to any discharge, whether or not the taxpayer is insolvent, and the amount by which the taxpayer is insolvent, shall be determined on the basis of the taxpayer's assets and liabilities immediately before the discharge.

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