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SECTION 1. REVISION OF TAX TREATMENT OF DERIVATIVE TRANSACTIONS ENTERED
INTO BY A CORPORATION WITH RESPECT TO ITS STOCK.

(a) In General.--Section 1032 of the Internal Revenue Code of 1986
(relating to exchange of stock for property) is amended to read as
follows:

''SEC. 1032. TRANSACTIONS BY A CORPORATION WITH RESPECT TO ITS STOCK.

''(a) Nonrecognition of Gain or Loss.--No gain or loss shall be
recognized to a corporation on the receipt of property (including
money) or services in exchange for stock of such corporation.
''(b) Treatment of Derivative Transactions.--
''(1) Nonrecognition treatment.--
''(A) In general.--Except as provided in paragraph
(2), section 1032 derivative items of a corporation
shall not be taken into account in determining such
corporation's liability for tax under this subtitle.
''(B) Section 1032 derivative items.--For purposes
of subparagraph (A), the term 'section 1032 derivative
item' means any item of income, gain, loss, or
deduction if--
''(i) such item arises out of the rights or
obligations under any option or forward or
futures contract to the extent such option or
contract relates to the corporation's stock (or
is attributable to any transfer or
extinguishment of any such right or
obligation), or
''(ii) such item arises under any other
contract or position but only to the extent
that such item reflects (or is determined by
reference to) changes in the value of such
stock or distributions thereon.
Such term shall not include any deduction allowable
under section 83 or under section 163 and shall not
include any deduction for any item which is in the
nature of compensation for services rendered. For
purposes of this subparagraph, de minimis relationships
shall be disregarded.
''(2) Income recognition on certain forward contracts.--
''(A) In general.--If--
''(i) a corporation acquires its stock, and
''(ii) such acquisition is part of a plan
(or series of related transactions) pursuant to
which the corporation enters into a forward
contract with respect to its stock,
such corporation shall include amounts in income as if
the excess of the amount to be received under the
forward contract over the fair market value of the
stock as of the date the corporation entered into the
forward contract were original issue discount on a debt
instrument acquired on such date. The preceding
sentence shall apply only to the extent that the amount
of stock involved in the forward contract does not
exceed the amount acquired as described in clause (i).
''(B) Plan presumed to exist.--If a corporation
enters into a forward contract with respect to its
stock within the 60-day period beginning on the date
which is 30 days before the date that the corporation
acquires its stock, such acquisition shall be treated
as pursuant to a plan described in subparagraph (A)(ii)
unless it is established that entering into such
contract and such acquisition are not pursuant to a
plan or series of related transactions.
''(C) Forward contract.--The term 'forward
contract' has the meaning given to such term by section
1259(d)(1); except that such term shall include any
transactions or series of related transactions having
the same effect as a forward contract (as so defined).
''(c) Treasury Stock Treated as Stock.--Any reference in this
section to stock shall be treated as including a reference to treasury
stock.
''(d) Regulations.--The Secretary shall prescribe such regulations
as may be appropriate to carry out the purposes of this section,
including regulations which treat the portion of an instrument which is
described in subsection (b) separately from the portion of such
instrument which is not so described.
''(e) Basis.--For basis of property acquired by a corporation in
certain exchanges for its stock, see section 362.''.
(b) Clerical Amendment.--The item relating to section 1032 in the
table of sections for part III of subchapter O of chapter 1 of such
Code is amended to read as follows:

''Sec. 1032. Transactions by a
corporation with respect to its
stock.''.
(c) Effective Date.--The amendments made by this section shall
apply to transactions entered into after the date of the enactment of
this Act.
Amends the Internal Revenue Code to revise the tax treatment of derivative transactions entered into by a corporation with respect to its stock.Provides for nonrecognition of derivative gain, loss, or deduction items (as defined by this Act). Excepts certain forward contracts from such treatment.