I 
109TH CONGRESS 
1ST SESSION H. R. 4187 
To amend the Internal Revenue Code of 1986 to limit the recognition of 
gain under section 355(e) of such Code to certain leveraged spin-merger 
transactions. 
IN THE HOUSE OF REPRESENTATIVES 
NOVEMBER 1, 2005 
Mr. CANTOR 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 limit the 
recognition of gain under section 355(e) of such Code 
to certain leveraged spin-merger transactions. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. AMENDMENT OF SECTION 355(e). 
(a) IN GENERAL.—Subsection (e) of section 355 of 
the Internal Revenue Code of 1986 (relating to recognition 
of gain on certain distributions of stock or securities in 
connection with acquisitions) is amended to read as fol-
lows:
‘‘(e) RECOGNITION OF GAIN ON CERTAIN DISTRIBU-
TIONS OF STOCK OR SECURITIES IN CONNECTION WITH 
CERTAIN LEVERAGED SPIN-MERGER TRANSACTIONS.— 
‘‘(1) IN GENERAL.—If there is a distribution to 
which this subsection applies, gain shall be recog-
nized immediately prior to the distribution to the ex-
tent of the lesser of— 
‘‘(A) the excess relative leverage at the 
time of the distribution, and 
‘‘(B) the gain realized as a result of the 
distribution. 
‘‘(2) DISTRIBUTIONS
TO
WHICH
SUBSECTION 
APPLIES.—This subsection shall apply to any dis-
tribution that would otherwise qualify under sub-
section 355(a) if— 
‘‘(A) there is a prearranged change in con-
trol, 
‘‘(B) the change in control company is 
highly leveraged immediately after the distribu-
tion (determined without regard to any post- 
distribution transactions), and 
‘‘(C) the change in control company has 
excess relative leverage. 
‘‘(3) DEFINITION OF PREARRANGED CHANGE IN 
CONTROL.—
‘‘(A) IN GENERAL.—For purposes of this 
subsection, a prearranged change in control 
shall be deemed to occur if the distribution is 
part of a plan (or series of related transactions) 
pursuant to which 1 or more persons acquire 
directly or indirectly stock representing a 50- 
percent or greater interest in the distributing 
corporation or any controlled corporation. 
‘‘(B) PLAN PRESUMED TO EXIST IN CER-
TAIN CASES.—If 1 or more persons acquire di-
rectly or indirectly stock representing a 50-per-
cent or greater interest in the distributing cor-
poration or any controlled corporation during 
the 4-year period beginning on the date that is 
2 years before the date of the distribution, such 
acquisition shall be treated as pursuant to a 
plan described in subparagraph (A) unless it is 
established that the distribution and the acqui-
sition are not pursuant to a plan or series of re-
lated transactions. 
‘‘(C) CERTAIN
PLANS
DISREGARDED.—A 
plan or series of related transactions shall not 
be treated as described in subparagraph (A) if, 
immediately after the completion of such plan 
or series of transactions, the distributing cor-
poration and all controlled corporations are 
members of a single affiliated group (as defined 
in section 1504 without regard to subsection (b) 
thereof). 
‘‘(D) CERTAIN ACQUISITIONS NOT TAKEN 
INTO ACCOUNT.—Except as provided in regula-
tions, the following acquisitions shall not be 
taken into account in applying subparagraph 
(A): 
‘‘(i) The acquisition of stock in any 
controlled corporation by the distributing 
corporation. 
‘‘(ii) The acquisition by a person of 
stock in any controlled corporation by rea-
son of holding stock or securities in the 
distributing corporation. 
‘‘(iii) The acquisition by a person of 
stock in any successor corporation of the 
distributing corporation or any controlled 
corporation by reason of holding stock or 
securities of such distributing or controlled 
corporation. 
‘‘(iv) The acquisition of stock in the 
distributing corporation or any controlled 
corporation to the extent that the percent-
age of stock owned directly or indirectly in 
such corporation by each person owning 
stock in such corporation immediately be-
fore the acquisition does not decrease. 
This subparagraph shall not apply to any acqui-
sition if the stock held before the acquisition 
was acquired pursuant to a plan (or series of 
related transactions) described in subparagraph 
(A). 
‘‘(E) ASSET
ACQUISITIONS.—Except as 
provided in regulations, for purposes of this 
subsection, if the assets of the distributing cor-
poration or any controlled corporation are ac-
quired by a successor corporation in a trans-
action described in subparagraph (A), (C) or 
(D) of section 368(a)(1) or any other trans-
action specified in regulations by the Secretary, 
the shareholders (immediately before the acqui-
sition) of the corporation acquiring such assets 
shall be treated as acquiring stock in the cor-
poration from which the assets were acquired. 
‘‘(F) DEFINITIONS AND SPECIAL RULES.— 
For purposes of this subsection— 
‘‘(i) CHANGE
IN
CONTROL
COM-
PANY.—The term ‘change in control com-