pany’ means, with respect to any pre-
arranged change in control, the distrib-
uting or controlled corporation (or both) 
that undergoes such change in control. 
‘‘(ii) 50-PERCENT
OR
GREATER
IN-
TEREST.—The term ‘50-percent or greater 
interest’ has the meaning given such term 
by subsection (d)(4). 
‘‘(iii) DISTRIBUTIONS IN TITLE 11 OR 
SIMILAR
CASE.—Paragraph (1) shall not 
apply to any distribution made in a title 11 
or similar case (as defined in section 
368(a)(3)). 
‘‘(iv) AGGREGATION
AND
ATTRIBU-
TION RULES.— 
‘‘(I) AGGREGATION.—The rules 
of paragraph (7)(A) of subsection (d) 
shall apply. 
‘‘(II) 
ATTRIBUTION.—Section 
318(a)(2) shall apply in determining 
whether a person holds stock or secu-
rities 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 pre-
ceding sentence. 
‘‘(v) 
SUCCESSORS
AND
PREDE-
CESSORS.—Any reference to a controlled 
corporation or a distributing corporation 
shall include a reference to any predecessor 
or successor of such corporation. 
‘‘(4) DEFINITION
OF
HIGHLY
LEVERAGED.— 
For purposes of this subsection— 
‘‘(A) IN GENERAL.—A change in control 
company shall be considered to be highly lever-
aged for purpose of this subsection if its ratio 
of debt to equity exceeds 2 to 1. 
‘‘(B) RATIO
OF
DEBT
TO
EQUITY.—The 
term ‘ratio of debt to equity’ means the ratio 
which the total indebtedness of the company 
bears to the value of the company’s equity. 
‘‘(C) WHEN TO MEASURE RATIO OF DEBT 
TO EQUITY.—The ratio of debt to equity of the 
distributing and controlled corporations shall be 
measured immediately following the distribu-
tion, but prior to any transactions occurring 
after the distribution involving the distributing 
or controlled corporations. 
‘‘(D) INDEBTEDNESS.—Indebtedness—
‘‘(i) shall not include indebtedness be-
tween corporations that are members of an 
affiliated group immediately after the dis-
tribution, 
‘‘(ii) shall not include any liabilities 
described in section 357(c)(3), 
‘‘(iii) shall be computed with reference 
to the adjusted issue price (as defined in 
section 1272(a)(4)), and 
‘‘(iv) shall include stock described in 
section 1504(a)(4). 
‘‘(E) VALUE OF COMPANY’S EQUITY.—The 
value of the company’s equity shall be based on 
the fair market value of all the company’s eq-
uity immediately after the distribution exclud-
ing the value of any equity described subpara-
graph (D)(iv). 
‘‘(F) AFFILIATED GROUPS.—In any case 
in which the issuing corporation of any indebt-
edness is a member of an affiliated group (with-
in the meaning of section 1504(a)) which in-
cludes the distributing or controlled corpora-
tion, the calculation of the debt to equity ratio 
for purposes of this subsection shall be deter-
mined, pursuant to regulations prescribed by
the Secretary, by treating all the members of 
the affiliated group in the aggregate as the 
issuing corporation of such indebtedness. 
‘‘(G) SPECIAL RULES FOR BANKS, LEND-
ING OR FINANCE COMPANIES.—With respect to 
any corporation which is a bank (as defined in 
section 581) or primarily engaged in a lending 
or finance business, in determining the debt to 
equity ratio of such corporation (or of the affili-
ated group of which such corporation is a mem-
ber) for purposes of this subsection, the total 
indebtedness of such corporation shall be re-
duced by an amount equal to the total indebted-
ness owed to such corporation which arises out 
of the banking business of such corporation, or 
out of the lending or finance business of such 
corporation, as the case may be. 
‘‘(H) OUTSIDE LEVERAGE TEST.—If ratio 
of debt to equity of the change in control com-
pany equals or exceeds 6 to 1 and paragraph 
(2)(A) is met with respect to a distribution, 
then— 
‘‘(i) the requirements of subpara-
graphs (B) and (C) of paragraph (2) shall
be treated as met with respect to such dis-
tribution and 
‘‘(ii) the gain realized as a result of 
the distribution shall be recognized not-
withstanding paragraph (1). 
‘‘(5) DEFINITION OF EXCESS RELATIVE LEVER-
AGE.—For purposes of this subsection— 
‘‘(A) IN GENERAL.—The term ‘excess rel-
ative leverage’ means the excess, if any, of— 
‘‘(i) the actual indebtedness of the 
change in control company, over 
‘‘(ii) the maximum permitted indebt-
edness of the change in control company. 
‘‘(B) MAXIMUM
PERMITTED
INDEBTED-
NESS.—The maximum permitted indebtedness 
of a change in control company equals the 
greater of— 
‘‘(i) the amount of indebtedness that 
would result in the change in control com-
pany having a debt to equity ratio of 2.0, 
and 
‘‘(ii)(I) if the change in control com-
pany is the controlled company in the dis-
tribution, the amount of indebtedness that 
would result in the controlled corporation