II

104TH CONGRESS

2D SESSION S. 2141

To amend the Internal Revenue Code of 1986 to permit certain tax free

corporate liquidations into a 501(c)(3) organization and to revise the

unrelated business income tax rules regarding receipt of debt-financed

property in such a liquidation.

IN THE SENATE OF THE UNITED STATES

SEPTEMBER 27, 1996

Mrs. FEINSTEIN 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 permit

certain tax free corporate liquidations into a 501(c)(3)

organization and to revise the unrelated business income

tax rules regarding receipt of debt-financed property in

such a liquidation.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,
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•S 2141 IS

1 SECTION 1. ELIMINATION OF CORPORATE LEVEL TAX

2 UPON LIQUIDATION OF CLOSELY HELD COR3 PORATIONS UNDER CERTAIN CONDITIONS.

4 (a) IN GENERAL.—Paragraph (2) of section 337(b)

5 of the Internal Revenue Code of 1986 (relating to treat6 ment of indebtedness of subsidiary, etc.) is amended—

7 (1) by striking ‘‘Except as provided in subpara8 graph (B)’’ in subparagraph (A) and inserting ‘‘Ex9 cept as provided in subparagraph (B) or (C)’’, and

10 (2) by adding at the end the following new sub11 paragraph:

12 ‘‘(C) EXCEPTION IN THE CASE OF STOCK

13 ACQUIRED WITHOUT CONSIDERATION.—If the

14 80-percent distributee is an organization de15 scribed in section 501(c)(3) and acquired stock

16 in a liquidated domestic corporation from either

17 a decedent (within the meaning of section

18 1014(b)) or the decedent’s spouse, subpara19 graph (A) shall not apply to any distribution of

20 property to the 80-percent distributee. This

21 subparagraph shall apply only if all of the fol22 lowing conditions are met:

23 ‘‘(i) Eighty percent or more of the

24 stock in the liquidated corporation was ac25 quired by the distributee, solely by a dis26 tribution from an estate or trust created
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•S 2141 IS

1 by one or more qualified persons. For pur2 poses of this clause, the term ‘qualified

3 person’ means a citizen or individual resi4 dent of the United States, an estate (other

5 than a foreign estate within the meaning

6 of section 7701(a)(31)(A)), or any trust

7 described in clause (i), (ii), or (iii) of sec8 tion 1361(c)(2)(A).

9 ‘‘(ii) The liquidated corporation

10 adopted its plan of liquidation on or after

11 January 1, 1997.

12 ‘‘(iii) The 80-percent distributee is an

13 organization created or organized under

14 the laws of the United States or of any

15 State.

16 Nothing in subsection (d) shall be construed to

17 limit the application of this subsection in cir18 cumstances in which this subparagraph ap19 plies.’’.

20 (b) REVISION OF UNRELATED BUSINESS INCOME

21 TAX RULES TO EXEMPT CERTAIN ASSETS.—Subpara22 graph (B) of section 514(c)(2) of the Internal Revenue

23 Code of 1986 (relating to property acquired subject to

24 mortgage, etc.) is amended by inserting ‘‘or pursuant to
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1 a liquidation described in section 337(b)(2)(C),’’ after

2 ‘‘bequest or devise,’’.

3 (c) EFFECTIVE DATE.—The amendments made by

4 this section shall take effect on the date of the enactment

5 of this Act.

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