I
105TH CONGRESS
1ST SESSION
H. R. 1365
To amend section 355 of the Internal Revenue Code of 1986 to prevent
the avoidance of corporate tax on prearranged sales of corporate stock,
and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
APRIL 17, 1997
Mr. ARCHER introduced the following bill; which was referred to the
Committee on Ways and Means
A BILL
To amend section 355 of the Internal Revenue Code of
1986 to prevent the avoidance of corporate tax on pre-
arranged sales of corporate stock, and for other pur-
poses.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. APPLICATION OF SECTION 355 TO DISTRIBU-
TIONS FOLLOWED BY ACQUISITIONS AND TO
INTRAGROUP TRANSACTIONS.
(a) DISTRIBUTIONS FOLLOWED BY ACQUISITIONS.—
Section 355 of the Internal Revenue Code of 1986 (relat-
ing to distribution of stock and securities of a controlled
corporation) is amended by adding at the end the following
new subsection:
‘‘(e) RECOGNITION OF GAIN WHERE CERTAIN DIS-
TRIBUTIONS OF STOCK OR SECURITIES ARE FOLLOWED
BY ACQUISITION.—
‘‘(1) GENERAL RULE.—If there is a distribution
to which this subsection applies, the following rules
shall apply:
‘‘(A) ACQUISITION OF CONTROLLED COR-
PORATION.—If there is an acquisition described
in paragraph (2)(A)(ii) with respect to any con-
trolled corporation (or any successor thereof),
any stock or securities in the controlled cor-
poration shall not be treated as qualified prop-
erty for purposes of subsection (c)(2) of this
section or section 361(c)(2).
‘‘(B) ACQUISITION OF DISTRIBUTING COR-
PORATION.—If there is an acquisition described
in paragraph (2)(A)(ii) with respect to the dis-
tributing corporation (or any successor thereof),
the controlled corporation shall recognize gain
in an amount equal to the amount of net gain
which would be recognized if all the assets of
the distributing corporation (immediately after
the distribution) were sold (at such time) for
fair market value. Any gain recognized under
the preceding sentence shall be treated as long-
term capital gain and shall be taken into ac-
count for the taxable year which includes the
day after the date of such distribution.
‘‘(2) DISTRIBUTIONS
TO
WHICH
SUBSECTION
APPLIES.—
‘‘(A) IN GENERAL.—This subsection shall
apply to any distribution—
‘‘(i) to which this section (or so much
of section 356 as relates to this section)
applies, and
‘‘(ii) which is part of a plan (or series
of related transactions) pursuant to which
a person acquires stock representing a 50-
percent or greater interest in the distribut-
ing corporation or any controlled corpora-
tion (or any successor of either).
‘‘(B) PLAN PRESUMED TO EXIST IN CER-
TAIN CASES.—If a person acquires stock rep-
resenting a 50-percent or greater interest in the
distributing corporation or any controlled cor-
poration (or any successor of either) during the
4-year period beginning on the date which is 2
years before the date of the distribution, such
acquisition shall be treated as pursuant to a
plan described in subparagraph (A)(ii) unless it
is established that the distribution and the ac-
quisition are not pursuant to a plan or series of
related transactions.
‘‘(C) CERTAIN ACQUISITIONS NOT TAKEN
INTO ACCOUNT.—If—
‘‘(i) a person acquires stock in any
controlled corporation by reason of holding
stock in the distributing corporation, and
‘‘(ii) such person did not acquire the
stock in the distributing corporation pursu-
ant to a plan described in subparagraph
(A)(ii),
the acquisition described in clause (i) shall not
be taken into account for purposes of subpara-
graph (A)(ii) or (B).
‘‘(D) COORDINATION
WITH
SUBSECTION
(d).—This subsection shall not apply to any
distribution to which subsection (d) applies.
‘‘(3) DEFINITION
AND
SPECIAL
RULES.—For
purposes of this subsection—
‘‘(A) 50-PERCENT
OR
GREATER
INTER-
EST.—The term ‘50-percent or greater interest’
has the meaning given such term by subsection
(d)(4).
‘‘(B) DISTRIBUTIONS IN TITLE 11 OR SIMI-
LAR CASE.—Paragraph (1) shall not apply to
any distribution made in a title 11 or similar
case (as defined in section 368(a)(3)).
‘‘(C) AGGREGATION
AND
ATTRIBUTION
RULES.—
‘‘(i) AGGREGATION.—The rules of
paragraph (7) of subsection (d) shall
apply.
‘‘(ii) 
ATTRIBUTION.—Section
318(a)(2) shall apply in determining
whether a person holds stock or securities
in any corporation. Except as provided in
regulations, section 318(a)(2)(C) shall be
applied without regard to the phrase ‘50
percent or more in value’ for purposes of
the preceding sentence.
‘‘(D) STATUTE OF LIMITATIONS.—If there
is an acquisition to which paragraph (1) (A) or
(B) applies—
‘‘(i) the statutory period for the as-
sessment of any deficiency attributable to
any part of the gain recognized under this
subsection by reason of such acquisition
shall not expire before the expiration of 3
years from the date the Secretary is noti-
fied by the taxpayer (in such manner as
the Secretary may by regulations pre-
scribe) that such acquisition occurred, and
‘‘(ii) such deficiency may be assessed
before the expiration of such 3-year period
notwithstanding the provisions of any
other law or rule of law which would other-
wise prevent such assessment.
‘‘(4) REGULATIONS.—The Secretary shall pre-
scribe such regulations as may be necessary to carry
out the purposes of this subsection, including regula-
tions—
‘‘(A) providing for the application of this
subsection where there is more than 1 con-
trolled corporation,
‘‘(B) treating 2 or more distributions as 1
distribution where necessary to prevent the
avoidance of such purposes, and
‘‘(C) providing for the application of rules
similar to the rules of subsection (d)(6) where
appropriate for purposes of paragraph (2)(B).’’
(b) SECTION 355 NOT TO APPLY
TO CERTAIN
INTRAGROUP TRANSACTIONS.—Section 355 of the Inter-
nal Revenue Code of 1986, as amended by subsection (a),
is amended by adding at the end the following new sub-
section:
‘‘(f) SECTION
NOT
TO
APPLY
TO
CERTAIN
INTRAGROUP TRANSACTIONS.—Except as provided in reg-
ulations, this section shall not apply to the distribution
of stock from 1 member of an affiliated group filing a con-
solidated return to another member of such group, and
the Secretary shall provide proper adjustments for the
treatment of such distribution, including (if necessary) ad-
justments to—
‘‘(1) the adjusted basis of any stock which—
‘‘(A) is in a corporation which is a member
of such group, and
‘‘(B) is held by another member of such
group, and
‘‘(2) the earnings and profits of any member of
such group.’’
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by
this section shall apply to distributions after April
16, 1997.