An Act relating to the income tax treatment of certain sales of real property by a corporation
PL 91-686 (H.R.19790), enacted 01/12/1971

2070 
PUBLIC LAW 91-686-JAN. 12, 1971 
[84 STAT. 
Public Law 91-686 
AN ACT 
January 12, 1971 
^ , 
. 
, 
. 
[H. R. 19790] 
Relating to the income tax treatment of certain sales of real property by a 
corporation. 
Taxes. 
Be it enacted hy the Senate and House of Rep^resentatives of the 
United States' of America in Congress assembled^ That (a) for pur-
saierby'^corpora- posBS of the Iiitemal Revenue Code of 1954 any lot or parcel of real 
ti°n- 
property sold or exchanged by a corporation which would, but for this 
26^sc^\' I't seq. ^^t? be treated as property held primarily for sale to customers in the 
ordinary course of trade or business shall not, except to the extent pro-
vided in (b), be so treated if— 
(1) no shareholder of the corporation directly or indirectly 
holds real property primarily for sale to customers in the ordinary 
course of trade or business; and 
(2) (A) such lot or parcel is a part of real property (i) held 
for more than twenty-five years at the time of sale or exchange, 
and (ii) acquired before January 1, 1984, by the corporation as 
a result of the foreclosure of a lien (or liens) thereon which 
secured the payment of indebtedness held by one or more creditors 
who transferred one or more foreclosure bids to the corporation 
in exchange for all its stock (with or without other considera-
tion), or 
(B) (i) such lot or parcel is a part of additional real property 
acquired before January 1, 1957, by the corporation in the near 
vicinity of any real property to which subparagraph (A) applies, 
or 
(ii) such lot or parcel is wholly or to some extent a part of any 
minor acquisition made after December 31, 1956, by the corpora-
tion to adjust boundaries, to fill gaps in previously acquired 
property, to facilitate the installation of streets, utilities, and 
other public facilities, or to facilitate the sale of adjacent prop-
erty, or 
(iii) such lot or parcel is wholly or to some extent a part of a 
reacquisition by the corporation after December 81, 1956, of 
property previously owned by the corporation; 
but only if at least 80 percent (as measured by area) of the real 
property sold or exchanged by the corporation w^ithin the taxable 
year is property described in subparagraph (A); and 
(3) there were no acquisitions of real property by the corpora-
tion after December 31, 1956, other than— 
(A) acquisitions described in paragraph (2) (B) (ii) and 
reacquisitions described in paragraph (2) (B) (iii), or 
(B) acquisitions of real property used in a trade or business 
of the corporation or held for investment by the corporation; 
and 
(4) the corporation did not after December 31, 1957, sell or 
exchange (except in condemnation or under threat of condemna-
tion) any residential lot or parcel on which, at the time of the sale 
or exchange, there existed any substantial improvements (other 
than improvements in existence at the time the land was acquired 
by the corporation) except subdivision, clearing, grubbing, and 
grading, building or installation of water, sewer, and drainage 
facilities, construction of roads, streets, and sidewalks, and instal-
lation of utilities. 
In any case in w4iich a corporation referred to in paragraphs (1), (2), 
(3), and (4) is a member of an affiliated group as defined in section 
68A Stat. 369. 
1504(a) of the Internal Revenue Code of 1954, such affiliated group 
84 STAT.] 
PUBLIC LAW 91-687-JAN. 12, 1971 
2071 
shall, for purposes of such paragraphs, be treated as a single 
corporation. 
(b) (1) Gain from any sale or exchange described in subsection (a) 
shall be deemed, for j)urposes of such Code, to be gain from the sale of 
property held primarily for sale to customers in the ordinary course of 
trade or business to the extent of 5 percent of the selling price. 
(2) For the purpose of computing gain under paragraph (1), 
expenditures incurred in connection with the sale or exchange of any 
lot or parcel shall neither be allowed as a deduction in computing 
taxable income, nor treated as reducing the amount realized on such 
sale or exchange; but so much of such expenditures as does not exceed 
the portion of gain deemed under paragraph (1) to be gain from the 
sale of property held primarily for sale to customers in the ordinary 
course of trade or business shall be so allowed as a deduction, and the 
remainder, if any, shall be treated as reducing the amount realized 
on such sale or exchange. 
(c) The provisions of subsections (a) and (b) shall apply to tax-
able years beginning after December 31, 1957, and before January 1, 
1984. 
SEC. 2. (a) Section 1237 of the Internal Revenue Code of 1954 is 
amended by: 
(1) in subsection (a), striking out the parenthetical expres-
sion: "(including corporations only if no shareholder directly or 
indirectly holds real property for sale to customers in the ordinary 
course of trade or busmess and only in the case of property 
described in the last sentence of subsection (b) (3))" and inserting 
in lieu thereof the words "other than a corporation"; 
(2) in subsection (b), striking out the last sentence. 
(b) The amendments made by subsection (a) shall be effective for 
taxable years beginning after the date of enactment of this Act. 
Approved January 12, 1971. 
Effective date. 
68A Stat. 330; 
70 Stat. 118. 
26 u s e 1237, 
Effective date. 
Public Law 91-687 
A N A C T 
January 12, 197 1 
To amend section 165(g) of the Internal Revenue Code of 1954 which provides 
[H. R. I9369] 
for treatment of losses on worthless securities. 
Be it enacted hy the Senate and House of Representatives 
of the 
United States of Ameiica in Congress assembled, That section 165 of 
the Internal Revenue Code of 1954 (relating to losses) is amended— 
(a) by striking out in subsection (g) (3) (A) "at least 95 per-
cent of each class of its stock" and inserting in lieu thereof "stock 
possessing at least 80 percent of the voting power of all classes of 
its stock and at least 80 percent of each class of its nonvoting 
stock", and 
(b) by adding at the end of subsection (g) (3) the following: 
"As used in subparagraph (A), the term 'stock' does not include 
nonvoting stock which is limited and preferred as to dividends." 
SEC. 2. The amendments made by this Act shall apply with respect to 
taxable years beginning on or after January 1,1970. 
Approved January 12, 1971. 
Taxes. 
Worthless 
securities, l o s s e s . 
68A Stat. 49. 
26 u s e 165.