II 

109TH CONGRESS 

1ST SESSION S. 1327 

To amend the Internal Revenue Code of 1986 to modify the active business 

definition under section 355. 

IN THE SENATE OF THE UNITED STATES 

JUNE 29, 2005 

Mr. LOTT (for himself and Mr. BAUCUS) introduced the following bill; which 

was read twice and referred to the Committee on Finance 

A BILL 

To amend the Internal Revenue Code of 1986 to modify 

the active business definition under section 355. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. MODIFICATION OF ACTIVE BUSINESS DEFINI4 TION UNDER SECTION 355. 

5 (a) IN GENERAL.—Section 355(b) of the Internal 

6 Revenue Code of 1986 (defining active conduct of a trade 

7 or business) is amended by adding at the end the following 

8 new paragraph: 

9 ‘‘(3) SPECIAL RULES RELATING TO ACTIVE

10 BUSINESS REQUIREMENT.— 
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1 ‘‘(A) IN GENERAL.—For purposes of deter2 mining whether a corporation meets the re3 quirement of paragraph (2)(A), all members of 

4 such corporation’s separate affiliated group 

5 shall be treated as one corporation. For pur6 poses of the preceding sentence, a corporation’s 

7 separate affiliated group is the affiliated group 

8 which would be determined under section 

9 1504(a) if such corporation were the common 

10 parent and section 1504(b) did not apply. 

11 ‘‘(B) CONTROL.—For purposes of para12 graph (2)(D), all distributee corporations which 

13 are members of the same affiliated group (as 

14 defined in section 1504(a) without regard to 

15 section 1504(b)) shall be treated as one dis16 tributee corporation.’’. 

17 (b) CONFORMING AMENDMENTS.— 

18 (1) Subparagraph (A) of section 355(b)(2) of 

19 the Internal Revenue Code of 1986 is amended to 

20 read as follows: 

21 ‘‘(A) it is engaged in the active conduct of 

22 a trade or business,’’. 

23 (2) Section 355(b)(2) of such Code is amended 

24 by striking the last sentence. 

25 (c) EFFECTIVE DATE.— 
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1 (1) IN GENERAL.—The amendments made by 

2 this section shall apply— 

3 (A) to distributions after the date of the 

4 enactment of this Act, and 

5 (B) for purposes of determining the contin6 ued qualification under section 355(b)(2)(A) of 

7 the Internal Revenue Code of 1986 (as amend8 ed by subsection (b)(1)) of distributions made 

9 before such date, as a result of an acquisition, 

10 disposition, or other restructuring after such 

11 date. 

12 (2) TRANSITION RULE.—The amendments 

13 made by this section shall not apply to any distribu14 tion pursuant to a transaction which is— 

15 (A) made pursuant to an agreement which 

16 was binding on such date of enactment and at 

17 all times thereafter, 

18 (B) described in a ruling request submitted 

19 to the Internal Revenue Service on or before 

20 such date, or 

21 (C) described on or before such date in a 

22 public announcement or in a filing with the Se23 curities and Exchange Commission. 

24 (3) ELECTION TO HAVE AMENDMENTS

25 APPLY.—Paragraph (2) shall not apply if the dis-
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1 tributing corporation elects not to have such para2 graph apply to distributions of such corporation. 

3 Any such election, once made, shall be irrevocable. 

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