for whom were performed the services in connection
with which any qualified security is transferred shall
not be entitled to a deduction with respect to such
transfer if, and to the extent that, paragraph (1) ap-
plies to such transfer.’’
(2) CONFORMING AMENDMENTS.—
(A) Section 424(c)(1) of such Code is
amended by striking ‘‘or’’ at the end of sub-
paragraph (B), by striking the period at the
end of subparagraph (C) and inserting ‘‘, or’’,
and by adding at the end thereof the following
new subparagraph:
‘‘(D) a sale to which 1042 applies.’’
(B) Section 1042(a) of such Code is
amended—
(i) by striking ‘‘which would be recog-
nized as long-term capital gain’’ from the
first sentence thereof, and
(ii) by adding at the end thereof the
following new sentence: ‘‘If any gain is rec-
ognized after the application of the preced-
ing sentence, the portion of such recog-
nized gain (up to the whole of such recog-
nized gain) which is equal to the amount
of ordinary income, if any, that was not
recognized with respect to such qualified
securities by virtue of section 83(i) or
424(c)(1)(D) shall be treated as ordinary
income.’’.
(C) Section 1042(b)(4) of such Code is
amended by adding at the end thereof the fol-
lowing new sentence: ‘‘The requirements of the
preceding sentence shall not apply to qualified
securities received by the taxpayer in a transfer
to which section 83 or 422 applied (or to which
section 422 or 424 (as in effect on the day be-
fore the date of enactment of the Revenue Rec-
onciliation Act of 1990) applied).’’.
(D) Section 1042(c)(1)(B) of such Code is
amended to read as follows:
‘‘(B) were not received by the taxpayer
in—
‘‘(i) a distribution from a plan de-
scribed in section 401(a), or
‘‘(ii) a transfer pursuant to a right to
acquire stock to which section 423 ap-
plied.’’
(E) The first sentence of section 1042(d)
of such Code is amended to read as follows:
‘‘The basis of the taxpayer in qualified replace-
ment property purchased by the taxpayer dur-
ing the replacement period shall be reduced by
the amount of gain or ordinary income not rec-
ognized by virtue of such purchase, taking into
account the application of subsection (a) and, if
applicable, the application of section 83(i) or
section 424(c)(1)(D).’’
(F) Section 1042(e)(1) of such Code is
amended to read as follows:
‘‘(1) IN GENERAL.—If a taxpayer disposes of
any qualified replacement property, then, notwith-
standing any other provision of this title, gain (if
any) shall be recognized to the extent of the gain or
ordinary income which was not recognized by reason
of the acquisition by such taxpayer of such qualified
replacement property, taking into account the appli-
cation of subsection (a) and, if applicable, the appli-
cation of section 83(i) or 424(c)(1)(D). The portion
of such gain (up to the whole thereof) equal to the
amount of ordinary income that was not recognized
by reason of such acquisition shall be treated as or-
dinary income.’’
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to sales of qualified se-
curities on or after the date of the enactment of this
Act.
(b) MODIFICATION TO 25-PERCENT SHAREHOLDER
RULE.—
(1) IN
GENERAL.—Section 409(n)(1)(B) of
such Code is amended to read as follows:
‘‘(B) for the benefit of any other person
who owns (after the application of section
318(a)) more than 25 percent of—
‘‘(i) the total combined voting power
of all classes of stock of the corporation
which issued such employer securities or of
any corporation which is a member of the
same controlled group of corporations
(within the meaning of subsection (l)(4))
as such corporation, or
‘‘(ii) the total value of all classes of
stock of any such corporation.’’
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall take effect on the date of the
enactment of this Act.
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HR 2088 IH——2