I
105TH CONGRESS
1ST SESSION
H. R. 3029
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 HOUSE OF REPRESENTATIVES
NOVEMBER 12, 1997
Ms. DUNN (for herself, Mr. SMITH of Oregon, Ms. FURSE, Mr. NETHERCUTT,
Ms. HOOLEY of Oregon, and Mr. PAUL) introduced the following bill;
which was referred to the Committee on Ways and Means
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.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. ELIMINATION OF CORPORATE LEVEL TAX
UPON LIQUIDATION OF CLOSELY HELD COR-
PORATIONS UNDER CERTAIN CONDITIONS.
(a) IN GENERAL.—Paragraph (2) of section 337(b)
of the Internal Revenue Code of 1986 (relating to treat-
ment of indebtedness of subsidiary, etc.) is amended—
(1) by striking ‘‘Except as provided in subpara-
graph (B)’’ in subparagraph (A) and inserting ‘‘Ex-
cept as provided in subparagraph (B) or (C)’’, and
(2) by adding at the end the following new sub-
paragraph:
‘‘(C) EXCEPTION IN THE CASE OF CLOSE-
LY-HELD STOCK ACQUIRED WITHOUT CONSID-
ERATION.—If the 80-percent distributee is an
organization described in section 501(c)(3) and
acquired stock in a liquidated domestic corpora-
tion from either a decedent (within the meaning
of section 1014(b)) or the decedent’s spouse,
subparagraph (A) shall not apply to any dis-
tribution of property to the 80-percent distribu-
tee. This subparagraph shall apply only if all of
the following conditions are met:
‘‘(i) 80 percent or more of the stock
in the liquidated corporation was acquired
by the distributee, solely by a distribution
from an estate or trust created by one or
more qualified persons. For purposes of
this clause, the term ‘qualified person’
means a citizen or individual resident of
the United States, an estate (other than a
foreign estate within the meaning of sec-
tion 7701(a)(31)(A)), or any trust de-
scribed in clause (i), (ii), or (iii) of section
1361(c)(2)(A).
‘‘(ii) 
The 
liquidated 
corporation
adopted its plan of liquidation on or after
January 1, 1999.
‘‘(iii) The 80-percent distributee is an
organization created or organized under
the laws of the United States or of any
State.
‘‘(iv) All of the stock in the liquidated
corporation is non-readily-tradable stock
(as defined in section 6166(b)(7)(B)).
Nothing in subsection (d) shall be construed to
limit the application of this subsection in cir-
cumstances in which this subparagraph ap-
plies.’’.
(b) REVISION OF UNRELATED BUSINESS INCOME
TAX RULES TO EXEMPT CERTAIN ASSETS.—Subpara-
graph (B) of section 514(c)(2) of the Internal Revenue
Code of 1986 (relating to property acquired subject to
mortgage, etc.) is amended by inserting ‘‘or pursuant to
a liquidation described in section 337(b)(2)(C),’’ after
‘‘bequest or devise,’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall take effect on the date of the enactment
of this Act.
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