DESCRIPTION OF TAX TECHNICAL CORRECTIONS

IN THE "TAXPAYER RELIEF ACT OF 1998"

Scheduled for Markup

by the

HOUSE COMMITTEE ON WAYS AND MEANS

on September 17, 1998

Prepared by the Staff

of the

JOINT COMMITTEE ON TAXATION

September 15, 1998

JCX-61-98

CONTENTS

INTRODUCTION

DESCRIPTION OF TAX TECHNICAL CORRECTIONS

A. Technical Corrections to the 1998 Act

1. Burden of proof

2. Relief for innocent spouses

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3. Interest netting

4. Effective date for elimination of 18-month holding period for capital gains

B. Technical Corrections to the 1997 Act

1. Treatment of interest on qualified education loans

2. Capital gains distributions of charitable remainder trusts

3. Gifts may not be revalued for estate tax purposes after expiration of limitations

4. Coordinate Vaccine Injury Compensation Trust Fund expenditure purposes with list of taxable vaccines

5. Abatement of interest by reason of Presidentially declared disasters

6. Treatment of certain corporate distributions

7. Treatment of net operating losses arising from certain eligible losses

8. Determination of unborrowed cash value under COLI pro rata interest disallowance rules

9. Payment of taxes by commercially acceptable means

C. Technical Corrections to the 1984 Act

1. Casualty loss deduction

D. Disclosure of Tax Return Information to Department of Agriculture

E. Technical Corrections to the Transportation Equity Act for the 21st Century

INTRODUCTION

This document,(1) prepared by the staff of the Joint Committee on Taxation, provides a description of the

Chairman's mark with respect to tax technical corrections proposals. The House Committee on Ways and

Means has scheduled a markup of tax provisions on September 17, 1998.

References to the "1998 Act" are to the Internal Revenue Service Restructuring and Reform Act of 1998 (P.L.

105-206); references to the "1997 Act" are to the Taxpayer Relief Act of 1997 (P.L. 105-34); and references

to the "1984 Act" are to the Tax Reform Act of 1984 (P.L. 99-514). Except as otherwise provided, the

provisions described in this document generally are effective as if included in the originally enacted related

legislation.

DESCRIPTION OF TAX TECHNICAL CORRECTIONS

A. Technical Corrections to the 1998 Act

1. Burden of proof (sec. 3001 of the 1998 Act and sec. 7491 (a)(2)(C) of the Code)

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Present Law

The Treasury Secretary has the burden of proof in any court proceeding with respect to a factual issue if the

taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the taxpayer's

tax liability, provided specified conditions are satisfied (sec. 7491). One of these is that corporations, trusts,

and partnerships must meet certain net worth limitations. These net worth limitations do not apply to

individuals or to estates.

Explanation of Provision

The provision removes the net worth limitation from certain revocable trusts for the same period of time that

the trust would have been treated as part of the estate had the trust made the election under section 645 to be

treated as part of the estate.

2. Relief for innocent spouses (sec. 3201 of the 1998 Act and secs. 2024(a) and 6015(e) of the Code)

Present Law

A taxpayer who is no longer married to, is separated from, or has been living apart for at least 12 months

from the person with whom he or she originally joined in filing a joint Federal income tax return may elect to

limit his or her liability for a deficiency arising from such joint return to the amount of the deficiency that is

attributable to items that are allocable to such electing spouse. The election is limited to deficiency situations

and only affects the amount of the deficiency for which the electing spouse is liable. Thus, the election cannot

be used to generate a refund, to direct a refund to one spouse or the other, or to allocate responsibility for

payment where a balance due is reported on, but not paid with, a joint return.

In addition to the election to limit the liability for deficiencies, a taxpayer may be eligible for innocent spouse

relief. Innocent spouse relief allows certain taxpayers who joined in the filing of a joint return to be relieved

of liability for an understatement of tax that is attributable to items of the other spouse to the extent that the

taxpayer did not know or have reason to know of the understatement. The Secretary is also authorized to

provide equitable relief in situations where, taking into account all of the facts and circumstances, it is

inequitable to hold an individual responsible for all or a part of any unpaid tax or deficiency arising from a

joint return. Under certain circumstances, it is possible that a refund could be obtained under this authority.

Explanation of Provision

The provision clarifies that the ability to obtain a credit or refund of Federal income tax is limited to

situations where the taxpayer qualifies for innocent spouse relief or where the Secretary exercises his

authority to provide equitable relief.

3. Interest netting (sec. 3301 (c)(2) of the 1998 Act)

Present Law

For calendar quarters beginning after July 22, 1998, a net interest rate of zero applies where interest is

payable and allowable on equivalent amounts of overpayment and underpayment of any tax imposed by the

Internal Revenue Code. In addition, the net interest rate of zero will apply to periods on or before July 22,

1998, providing (1) the statute of limitations has not expired with respect to either the underpayment or

overpayment, (2) the taxpayer identifies the periods of underpayment and overpayment where interest is

payable and allowable for which the net interest rate of zero would apply, and (3) on or before December 31,

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1999, the taxpayer asks the Secretary to apply the net zero rate.

Explanation of Provision

The provision restores language originally included in the Senate amendment that clarifies that the statute of

limitations must not have expired with regard to either a tax underpayment or overpayment for the net zero

rate to apply.

4. Effective date for elimination of 18-month holding period for capital gains (sec. 5001 of the 1998 Act

and sec. 1(h) of the Code)

Present Law

The 1998 Act repealed the provision in the 1997 Act providing a maximum 28-percent rate for the long-term

capital gain attributable to property held more than one year but not more than 18 months. Instead, the 1998

Act treated this gain in the same manner as gain from property held more than 18 months. The provision in

the 1998 Act is effective for amounts properly taken into account after December 31, 1997. For gains taken

into account by a pass-thru entity, such as a partnership, S corporation, trust, estate, RIC or REIT, the date

that the entity properly took the gain into account is the appropriate date in applying this provision. Thus, for

example, amounts properly taken into account by a pass-thru entity in 1997 with respect to property held

more than one year but not more than 18 months which are included in income on an individual's 1998 return

are taken into account in computing 28-percent rate gain.

Explanation of Provision

Under the provision, in the case of a capital gain distribution made (or, treated under the RIC or REIT

provisions of the Code, as made) by a RIC or REIT after 1997, no amount will be taken into account in

computing 28-percent rate gain by reason of property being held more than one year but not more than 18

months, other than amounts taken into account by the RIC or REIT from other pass-thru entities in which the

RIC or REIT holds an interest. A similar rule applies to amounts properly taken into account by a RIC or

REIT by reason of holding, directly or indirectly, an interest in another RIC or REIT to which the rule in the

preceding sentence applies. Thus, for example, if a RIC sold stock held more than 1 year but not more than

18 months on November 15, 1997, for a gain, and makes a capital gain distribution in 1998, the gain is not

taken into account in computing 28-percent rate gain for purposes of determining the taxation of the 1998

distribution. If, however, gain was taken into account by a RIC by reason of holding an interest in a calendar

year 1997 partnership, the gain will not be recharacterized by reason of this provision.

The provision also corrects a cross reference.

B. Technical Corrections to the 1997 Act

1. Treatment of interest on qualified education loans (sec. 202 of the 1997 Act and secs. 221 and 163(h)

of the Code)

Present Law

Present law, as modified by the 1997 Act, provides that certain individuals who have paid interest on

qualified education loans may claim an above-the-line deduction for such interest expense, up to a maximum

dollar amount per year ($1,000 for taxable years beginning in 1998), subject to certain requirements. Present

law also provides that in the case of a taxpayer other than a corporation, no deduction is allowed for personal

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interest. For this purpose, personal interest means any interest allowable as a deduction, other than certain

types of interest listed in the statute. This provision does not specifically provide that otherwise deductible

qualified education loan interest is not treated as personal interest.

Explanation of Provision

The provision clarifies that otherwise deductible qualified education loan interest is not treated as

nondeductible personal interest.

2. Capital gain distributions of charitable remainder trusts (sec. 311 of the 1997 Act and sec. 5001 of

the 1998 Act and sec. 1(h) of the Code)

Present Law

Under present law, the income beneficiary of a charitable remainder trust ("CRT") includes the trust's capital

gain in income when the gains are distributed to the beneficiary (sec. 664(b)(2)). Internal Revenue Service

Notice 98-20 provides guidance with respect to the categorization of long-term capital gain distributions from

a CRT under the capital gain rules enacted by the 1997 Act. Under the Notice, long-term capital gains

properly taken into account by the trust before January 1, 1997, are treated as falling in the 20-percent group

of gain (i.e., gain not in the 28-percent rate gain or unrecaptured sec. 1250 gain). Long-term capital gains

properly taken into account by the trust after December 31, 1996, and before May 7, 1997, are included in

28-percent rate gain. Long-term capital gains properly taken into account by the trust after May 6, 1997, are

treated as falling into the category which would apply if the trust itself were subject to tax.

Explanation of Provision

The provision provides that, in the case of a capital gain distribution by a CRT after December 31, 1997, with

respect to amounts properly taken into account by the trust during 1997, amounts will not be included in the

28-percent rate gain category solely by reason of being properly taken into account by the trust before May 7,

1997, or by reason of the property being held not more than 18 months. Thus, for example, the sale of stock

by a CRT on February 1, 1997, will not be taken into account in determining 28-percent rate gain where the

gain is distributed after 1997.

Effective Date

The provision applies to taxable years beginning after December 31, 1997.

3. Gifts may not be revalued for estate tax purposes after expiration of statute of limitations (sec. 506 of

the 1997 Act and sec. 2001(f)(2) of the Code)

Present Law

Basic structure of Federal estate and gift taxes.--The Federal estate and gift taxes are unified so that a single

progressive rate schedule is applied to an individual's cumulative gifts and bequests. The tax on gifts made in

a particular year is computed by determining the tax on the sum of the taxable gifts made in that year and in

all prior years and then subtracting the tax on the prior years taxable gifts and the unified credit. Similarly, the

estate tax is computed by determining the tax on the sum of the taxable estate and prior taxable gifts and then

subtracting the tax on taxable gifts and the unified credit.

This structure raises two different, but related, issues: (1) what is the period beyond which additional gift

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taxes cannot be assessed or collected -- generically referred to as the "statute of limitations" -- and (2) what is

the period beyond which the amount of prior transfers cannot be revalued for the purpose of determining the

amount of tax on subsequent transfers.

Gift tax statute of limitations.--Section 6501(a) provides the general rule that any tax (including gift and

estate tax) must be assessed within 3 years after the return is filed by the taxpayer. Under section 6501(e)(2),

the period for assessments of gift or estate tax is increased to six years where there is more than a 25 percent

omission in the amount of the gross estate or total gifts disclosed on the gift or estate tax return.

Revaluation of gifts for gift tax purposes.--Under a rule applicable to the computation of the gift tax (sec.

2504(c)), the value of gifts made in prior years is the value that was used to determine the prior year's gift tax

if the statute of limitations for assessment of gift tax on the prior gifts has expired. In addition, section

6501(c)(9) provides that the value of any item which is required to be disclosed on a gift tax return may not

be redetermined by the Commissioner after the expiration of the statute of limitations.

The legislative history of that section that stated that: "This rule is applicable even where the value of the gift

as shown on the return does not result in any gift tax being owed (e.g., through use of the unified credit)...."

That legislative history further stated that, in order to revalue a gift that has been adequately disclosed on a

gift tax return, the IRS must issue a final notice of redetermination of value (a "final notice") within the

statute of limitations applicable to the gift for gift tax purposes (generally, three years). That legislative

history continued by stating that the Congress anticipated that the IRS will develop an administrative appeals

process whereby a taxpayer can challenge a redetermination of value by the IRS prior to issuance of a final

notice. In the event the taxpayer and the IRS cannot agree on the value of a gift, the 1997 Act provided the

U.S. Tax Court with jurisdiction to issue a declaratory judgment on the value of a gift (section 7477). A

taxpayer who is mailed a final notice may challenge the redetermined value of the gift (as contained in the

final notice) by filing a motion for a declaratory judgment with the Tax Court. The motion must be filed on or

before 90 days from the date that the final notice was mailed. The statute of limitations is tolled during the

pendency of the Tax Court proceeding.

Revaluation of gifts for estate tax purposes.--Similarly, a gift cannot be revalued for purposes of determining

the applicable estate tax bracket and available unified credit if (1) the statute of limitations has expired and

(2) the value of the gift is shown or disclosed on gift tax return or is disclosed in a statement attached to the

gift tax return (section 2001(f)).

Explanation of Provision

The provision clarifies the rules relating to revaluations of prior transfers for computation of the estate tax to

provide that the value of a prior transfer cannot be redetermined if the transfer was disclosed on a gift tax

return, or in a statement attached to the gift tax return, in a manner to adequately apprise the Treasury

Secretary of the nature the transfer even if there was no gift tax imposes on that transfer. In addition, the

provision removes the revaluation rule in section 6501(c)(9) since the substance of that rule also is provided

in sections 2001(f) and 2504(c).

4. Coordinate Vaccine Injury Compensation Trust Fund expenditure purposes with list of taxable

vaccines (sec. 904 of the 1997 Act and sec. 9510(c) of the Code)

Present Law

A manufacturer's excise tax is imposed on certain vaccines routinely recommended for administration to

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children (sec. 4131). The tax is imposed at a rate of $0.75 per dose on any listed vaccine component. Taxable

vaccine components are vaccines against diphtheria, tetanus, pertussis, measles, mumps, rubella, polio, HIB

(haemophilus influenza type B), hepatitis B, and varicella (chicken pox).

Amounts equal to net revenues from this excise tax are deposited in the Vaccine Injury Compensation Trust

Fund ("vaccine Trust Fund") to finance compensation awards under the Federal Vaccine Injury Compensation

Program for individuals who suffer certain injuries following administration of the taxable vaccines. Present

law provides that payments from the Vaccine Trust Fund may be made only for vaccines eligible under the

program as of December 22, 1987 (sec. 9510(c)(1)). Thus, payments may not be made for injuries related to

the HIB, hepatitis B or varicella vaccines.

Explanation of Provision

The provision provides that payments are permitted from the Vaccine Trust Fund for injuries related to the

administration of the HIB, hepatitis B, and varicella vaccines.

5. Abatement of interest by reason of Presidentially declared disaster (sec. 915 of the 1997 Act and sec.

6404(h) of the Code)

Present Law

The Taxpayer Relief Act of 1997 ("1997 Act") provided that, if the Secretary of the Treasury extends the

filing date of an individual tax return for 1997 for individuals living in an area that has been declared a

disaster area by the President during 1997, no interest shall be charged as a result of the failure of an

individual taxpayer to file an individual tax return, or pay the taxes shown on such return, during the

extension.

The Internal Revenue Service Restructuring and Reform Act of 1998 ("1998 Act") contains a similar rule

applicable to all taxpayers for tax years beginning after 1997 for disasters declared after 1997. The status of

disasters declared in 1998 but that relate to the 1997 tax year is unclear.

Explanation of Provision

The provision amends the 1997 Act rule so that it is available for disasters declared in 1997 or in 1998 with

respect to the 1997 tax year.

6. Treatment of certain corporate distributions (sec. 1012 of the 1997 Act and secs. 351(c) and 368(a)

(2)(H) of the Code)

Present Law

The 1997 Act (sec. 1012(a)) requires a distributing corporation to recognize corporate level gain on the

distribution of stock of a controlled corporation under section 355 of the Code if, pursuant to a plan or series

of related transactions, one or more persons acquire a 50-percent or greater interest (defined as 50 percent or

more of the voting power or value of the stock) of either the distributing or controlled corporation (Code sec.

355(e)). Certain transactions are excepted from the definition of acquisition for this purpose. Under the

technical corrections included in the Internal Revenue Service Restructuring and Reform Act of 1998, in the

case of acquisitions under section 355(e)(3)(A)(iv), the acquisition of stock in the distributing corporation or

any controlled corporation is disregarded to the extent that the percentage of stock owned directly or

indirectly in such corporation by each person owning stock in such corporation immediately before the

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acquisition does not decrease. (2)

In the case of a 50-percent or more acquisition of either the distributing corporation or the controlled

corporation, the amount of gain recognized is the amount that the distributing corporation would have

recognized had the stock of the controlled corporation been sold for fair market value on the date of the

distribution. No adjustment to the basis of the stock or assets of either corporation is allowed by reason of the

recognition of the gain.(3)

The 1997 Act (as amended by the technical corrections contained in the Internal Revenue Service

Restructuring and Reform Act of 1998) also modified certain rules for determining control immediately after

a distribution in the case of certain divisive transactions in which a controlled corporation is distributed and

the transaction meets the requirements of section 355. In such cases, under section 351 and modified section

368(a)(2)(H) with respect to reorganizations under section 368(a)(1)(D), the fact that the shareholders of the

distributing corporation dispose of part or all of the distributed stock shall not be taken into account.

The effective date (Act section 1012(d)(1)) states that the relevant provisions of the 1997 Act apply to

distributions after April 16, 1997, pursuant to a plan (or series of related transactions) which involves an

acquisition occurring after such date (unless certain transition provisions apply).

Explanation of Provision

The provision clarifies the computation of the "control immediately after" requirement of section 351(c) and

section 368(a)(2)(H) in the case of certain divisive transactions in which a corporation contributes assets to a

controlled corporation and then distributes the stock of the controlled corporation in a transaction that meets

the requirements of section 355 (or so much of section 356 as relates to section 355). In such cases, not only

the fact that the shareholders of the distributing corporation dispose of part or all of the distributed stock, but

also the fact that the corporation whose stock was distributed issues additional stock, shall not be taken into

account.

Effective Date

The provision generally is effective for distributions after April 16, 1997, as if included in the 1997 Act.

7. Treatment of net operating losses arising from certain eligible losses (sec. 1082 of the 1997 Act and

sec. 172 of the Code)

Present Law

The 1997 Act changed the general net operating loss ("NOL") carryback period of a taxpayer from three

years to two years. The three-year carryback period was retained in the case of an NOL attributable to an

eligible loss. An eligible loss is defined as (1) a casualty or theft loss of an individual taxpayer, or (2) a loss

incurred in a Presidentially declared disaster area by a taxpayer engaged in a farming business or a small

business. Other special rules apply to real estate investment trusts (REITs) (no carrybacks), specified liability

losses (10-year carryback), and excess interest losses (no carrybacks).

Explanation of Provision

The provision coordinates the use of eligible losses with the general rule for NOLs in the same manner as a

loss arising from a specified liability loss. Thus, an eligible loss for any year is treated as a separate net

operating loss and is taken into account after the remaining portion of the net operating loss for the taxable

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year.

8. Determination of unborrowed policy cash value under COLI pro rata interest disallowance rules

(sec. 1084 of the 1997 Act and sec. 264(f) of the Code)

Present Law

In the case of a taxpayer other than a natural person, no deduction is allowed for the portion of the taxpayer's

interest expense that is allocable to unborrowed policy cash surrender values with respect to any life

insurance policy or annuity or endowment contract issued after June 8, 1997. Interest expense is allocable to

unborrowed policy cash values based on the ratio of (1) the taxpayer's average unborrowed policy cash

values of life insurance policies and annuity and endowment contracts, issued after June 8, 1997, to (2) the

sum of (a) in the case of assets that are life insurance policies or annuity or endowment contracts, the average

unborrowed policy cash values and (b) in the case of other assets the average adjusted bases for all such other

assets of the taxpayer. The unborrowed policy cash values means the cash surrender value of the policy or

contract determined without regard to any surrender charge, reduced by the amount of any loan with respect

to the policy or contract. The cash surrender value is to be determined without regard to any other contractual

or noncontractual arrangement that artificially depresses the unborrowed policy cash value of a contract.

Explanation of Provision

The provision clarifies the meaning of "unborrowed policy cash value" under section 264(f)(3), with respect

to any life insurance, annuity or endowment contract. The technical correction clarifies that under section

264(f)(3), if the cash surrender value (determined without regard to any surrender charges) with respect to

any policy or contract does not reasonably approximate its actual value, then the amount taken into account

for this purpose is the greater of (1) the amount of the insurance company's liability with respect to the policy

or contract, as determined for purposes of the annual statement approved by the National Association or

Insurance Commissioners, (2) the amount of the insurance company's reserve with respect to the policy or

contract for purposes of such annual statement; or such other amount as is determined by the Treasury

Secretary. No inference is intended that such amounts may not be taken into account in determining the cash

surrender value of a policy or contract in such circumstances for purposes of any other provision of the Code.

9. Payment of taxes by commercially acceptable means (sec. 1205 of the 1997 Act and sec. 6311 (d)(2) of

the Code)

Present Law

The Code generally permits the payment of taxes by commercially acceptable means (such as credit cards)

(sec. 6311(d)). The Secretary may not pay any fee or provide any other consideration in connection with this

provision. This fee prohibition may have an unintended impact on Treasury contracts for the provision of

services unrelated to the payment of income taxes by commercially acceptable means.

Explanation of Provision

The provision clarifies that the prohibition on paying any fees or providing any other consideration applies to

the use of credit or debit cards for the payment of income taxes.

C. Technical Corrections to the 1984 Act

1. Casualty loss deduction (sec. 711(c) of the 1984 Act and secs. 172(d)(4), 67(b)(3), 68(c)(3), and 873(b)

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of the Code)

Present Law

The Tax Reform Act of 1984 ("1984 Act") deleted casualty and theft losses from property connected with a

nonbusiness transaction entered into for profit from the list of losses set forth in section 165(c)(3). This

amendment was made in order to provide that these losses were deductible in full and not subject to the $100

per casualty limitation or the 10-percent adjusted gross income floor applicable to personal casualty losses.

However, the amendment inadvertently eliminated the deduction for these losses from the computation of the

net operating loss. Also, the Tax Reform Act of 1986 provided that casualty losses described in section

165(c)(3) are not miscellaneous itemized deductions subject to the 2-percent adjusted gross income floor, and

the Revenue Reconciliation Act of 1990 provided that these losses are not treated as itemized deductions in

computing the overall limitation on itemized deductions. The losses of nonresident aliens are limited to

deductions described in section 165(c)(3). Because of the change made by the 1984 Act, the reference to

section 165(c)(3) does not include casualty and theft losses from nonbusiness transactions entered into for

profit.

Explanation of Provision

The provision provides that all deductions for nonbusiness casualty and theft losses are taken into account in

computing the net operating loss. Also, these deductions are not treated as miscellaneous itemized deductions

subject to the 2-percent adjusted gross income floor, or as itemized deductions subject to the overall

limitation on itemized deductions, and are allowed to nonresident aliens.

Effective Dates

The provision relating to the net operating loss and the deduction for nonresident aliens applies to taxable

years beginning after December 31, 1983.

The provision relating to miscellaneous itemized deductions applies to taxable years beginning after

December 31, 1986.

The provision relating to the overall limitation on itemized deductions applies to taxable years beginning

after December 31, 1990.

D. Disclosure of Tax Return Information to the Department of Agriculture(sec. 6103 (j) of the Code)

Present Law

Tax return information generally may not be disclosed, except as specifically provided by statute. Disclosure

is permitted to the Bureau of the Census for specified purposes, which included the responsibility of

structuring, conducting, and preparing the census of agriculture (sec. 6103(j)(1)). The Census of Agriculture

Act of 1997 (P.L. 105-113) transferred this responsibility from the Bureau of the Census to the Department of

Agriculture.

Explanation of Provision

The provision permits the continuation of disclosure of tax return information for the purpose of structuring,

conducting, and preparing the census of agriculture by authorizing the Department of Agriculture to receive

this information.

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Effective Date

The provision is effective on the date of enactment of this technical correction.

E. Technical Corrections to the Transportation Equity Act for the 21st Century (sec. 9004 of the Act

and sec. 9503(f) of the Code)

Present Law

The Transportation Equity Act for the 21st Century ("Transportation Equity Act") (P.L. 105-178) extended

the Highway Trust Fund and accompanying highway excise taxes. The Transportation Equity Act also

changed the budgetary treatment of Highway Trust Fund expenditures, including repeal of a provision that

balances maintained in the Highway Trust Fund pending expenditure earn interest from the General Fund of

the Treasury.

Explanation of Provision

The provision clarifies that the Secretary of the Treasury is not required to invest Highway Trust Fund

balances in interest-bearing obligations (because any interest paid to the Trust Fund by the General Fund

would be immediately returned to the General Fund).

1. This document may be cited as follows: Joint Committee on Taxation; Description of Tax Technical

Corrections in the "Taxpayer Relief Act of 1998" (JCX-61-98), September 15, 1998.

2. This exception (as certain other exceptions) does not apply if the stock held before the acquisition was

acquired pursuant to a plan (or series of related transactions) to acquire a 50-percent or greater interest in the

distributing or a controlled corporation.

3. The 1997 Act does not limit the otherwise applicable Treasury regulatory authority under section 336(e) of

the Code. Nor does it limit the otherwise applicable provisions ofsection 1367 with respect to the effect on

shareholder stock basis of gain recognized by an S corporation under this provision.

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