To amend section 355 of the Internal Revenue Code of 1986 to prevent the avoidance of corporate tax on prearranged sales of corporate stock, and for other purposes.

Summary: Amends the Internal Revenue Code to regulate the recognition of gain when there is a distribution of stock or securities that is part of a plan (or series of related transactions) pursuant to which a person acquires stock representing a 50 percent or greater interest in the distributing corporation or any controlled corporation (or any successor of either).  Presumes the existence of such a plan in certain circumstances (unless disproved).

SECTION 1. APPLICATION OF SECTION 355 TO DISTRIBUTIONS FOLLOWED BY 
              ACQUISITIONS AND TO INTRAGROUP TRANSACTIONS.

    (a) Distributions Followed by Acquisitions.--Section 355 of the 
Internal Revenue Code of 1986 (relating to distribution of stock and 
securities of a controlled corporation) is amended by adding at the end 
the following new subsection:
    ``(e) Recognition of Gain Where Certain Distributions of Stock or 
Securities Are Followed by Acquisition.--
            ``(1) General rule.--If there is a distribution to which 
        this subsection applies, the following rules shall apply:
                    ``(A) Acquisition of controlled corporation.--If 
                there is an acquisition described in paragraph 
                (2)(A)(ii) with respect to any controlled corporation 
                (or any successor thereof), any stock or securities in 
                the controlled corporation shall not be treated as 
                qualified property for purposes of subsection (c)(2) of 
                this section or section 361(c)(2).
                    ``(B) Acquisition of distributing corporation.--If 
                there is an acquisition described in paragraph 
                (2)(A)(ii) with respect to the distributing corporation 
                (or any successor thereof), the controlled corporation 
                shall recognize gain in an amount equal to the amount 
                of net gain which would be recognized if all the assets 
                of the distributing corporation (immediately after the 
                distribution) were sold (at such time) for fair market 
                value. Any gain recognized under the preceding sentence 
                shall be treated as long-term capital gain and shall be 
                taken into account for the taxable year which includes 
                the day after the date of such distribution.
            ``(2) Distributions to which subsection applies.--
                    ``(A) In general.--This subsection shall apply to 
                any distribution--
                            ``(i) to which this section (or so much of 
                        section 356 as relates to this section) 
                        applies, and
                            ``(ii) which is part of a plan (or series 
                        of related transactions) pursuant to which a 
                        person acquires stock representing a 50-percent 
                        or greater interest in the distributing 
                        corporation or any controlled corporation (or 
                        any successor of either).
                    ``(B) Plan presumed to exist in certain cases.--If 
                a person acquires stock representing a 50-percent or 
                greater interest in the distributing corporation or any 
                controlled corporation (or any successor of either) 
                during the 4-year period beginning on the date which is 
                2 years before the date of the distribution, such 
                acquisition shall be treated as pursuant to a plan 
                described in subparagraph (A)(ii) unless it is 
                established that the distribution and the acquisition 
                are not pursuant to a plan or series of related 
                transactions.
                    ``(C) Certain acquisitions not taken into 
                account.--If--
                            ``(i) a person acquires stock in any 
                        controlled corporation by reason of holding 
                        stock in the distributing corporation, and
                            ``(ii) such person did not acquire the 
                        stock in the distributing corporation pursuant 
                        to a plan described in subparagraph (A)(ii),
                the acquisition described in clause (i) shall not be 
                taken into account for purposes of subparagraph (A)(ii) 
                or (B).
                    ``(D) Coordination with subsection (d).--This 
                subsection shall not apply to any distribution to which 
                subsection (d) applies.
            ``(3) Definition and special rules.--For purposes of this 
        subsection--
                    ``(A) 50-percent or greater interest.--The term 
                `50-percent or greater interest' has the meaning given 
such term by subsection (d)(4).
                    ``(B) Distributions in title 11 or similar case.--
                Paragraph (1) shall not apply to any distribution made 
                in a title 11 or similar case (as defined in section 
                368(a)(3)).
                    ``(C) Aggregation and attribution rules.--
                            ``(i) Aggregation.--The rules of paragraph 
                        (7) of subsection (d) shall apply.
                            ``(ii) Attribution.--Section 318(a)(2) 
                        shall apply in determining whether a person 
                        holds stock or securities in any corporation. 
                        Except as provided in regulations, section 
                        318(a)(2)(C) shall be applied without regard to 
                        the phrase `50 percent or more in value' for 
                        purposes of the preceding sentence.
                    ``(D) Statute of limitations.--If there is an 
                acquisition to which paragraph (1) (A) or (B) applies--
                            ``(i) the statutory period for the 
                        assessment of any deficiency attributable to 
                        any part of the gain recognized under this 
                        subsection by reason of such acquisition shall 
                        not expire before the expiration of 3 years 
                        from the date the Secretary is notified by the 
                        taxpayer (in such manner as the Secretary may 
                        by regulations prescribe) that such acquisition 
                        occurred, and
                            ``(ii) such deficiency may be assessed 
                        before the expiration of such 3-year period 
                        notwithstanding the provisions of any other law 
                        or rule of law which would otherwise prevent 
                        such assessment.
            ``(4) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary to carry out the purposes of 
        this subsection, including regulations--
                    ``(A) providing for the application of this 
                subsection where there is more than 1 controlled 
                corporation,
                    ``(B) treating 2 or more distributions as 1 
                distribution where necessary to prevent the avoidance 
                of such purposes, and
                    ``(C) providing for the application of rules 
                similar to the rules of subsection (d)(6) where 
                appropriate for purposes of paragraph (2)(B).''
    (b) Section 355 Not To Apply to Certain Intragroup Transactions.--
Section 355 of the Internal Revenue Code of 1986, as amended by 
subsection (a), is amended by adding at the end the following new 
subsection:
    ``(f) Section Not To Apply to Certain Intragroup Transactions.--
Except as provided in regulations, this section shall not apply to the 
distribution of stock from 1 member of an affiliated group filing a 
consolidated return to another member of such group, and the Secretary 
shall provide proper adjustments for the treatment of such 
distribution, including (if necessary) adjustments to--
            ``(1) the adjusted basis of any stock which--
                    ``(A) is in a corporation which is a member of such 
                group, and
                    ``(B) is held by another member of such group, and
            ``(2) the earnings and profits of any member of such 
        group.''
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to distributions after April 16, 1997.
            (2) Transition rule for distributions followed by 
        acquisitions.--The amendments made by subsection (a) shall not 
        apply to any distribution after April 16, 1997, if such 
        distribution is--
                    (A) made pursuant to a written agreement which was 
                (subject to customary conditions) binding on such date 
                and at all times thereafter,
                    (B) described in a ruling request submitted to the 
                Internal Revenue Service on or before such date, or
                    (C) described on or before such date in a public 
                announcement or in a filing with the Securities and 
                Exchange Commission required solely by reason of the 
                distribution.
        This paragraph shall not apply to any written agreement, ruling 
        request, or public announcement or filing unless it identifies 
        the acquirer of the distributing corporation or any controlled 
        corporation, whichever is applicable.