I.R.C. § 384(a) General Rule —
If—
I.R.C. § 384(a)(1)
I.R.C. § 384(a)(1)(A) —
a corporation acquires directly (or through 1 or more other corporations) control
of another corporation, or
I.R.C. § 384(a)(1)(B) —
the assets of a corporation are acquired by another corporation in a reorganization
described in subparagraph (A), (C), or (D) of section 368(a)(1), and
I.R.C. § 384(a)(2) —
either of such corporations is a gain corporation,
income for any recognition period taxable year (to the extent attributable to recognized
built-in gains)
shall not be offset by any preacquisition loss (other than a preacquisition loss
of the gain corporation).
I.R.C. § 384(b) Exception Where Corporations Under Common Control
I.R.C. § 384(b)(1) In General —
Subsection (a) shall not apply to the preacquisition loss of any corporation if such corporation
and the gain corporation were members of the same controlled group at all times during
the 5-year period ending on the acquisition date.
I.R.C. § 384(b)(2) Controlled Group —
For purposes of this subsection, the term “controlled group” means a controlled
group of corporations (as defined in section 1563(a)); except that—
I.R.C. § 384(b)(2)(A) —
“more than 50 percent” shall be substituted for “at least 80 percent” each place
it appears,
I.R.C. § 384(b)(2)(B) —
the ownership requirements of section 1563(a) must be met both with respect to voting power and value, and
I.R.C. § 384(b)(2)(C) —
the determination shall be made without regard to subsection (a)(4) of section 1563.
I.R.C. § 384(b)(3) Shorter Period Where Corporations Not In Existence For 5 Years —
If either of the corporations referred to in paragraph (1) was not in existence throughout the 5-year period referred to in paragraph (1), the period during which such corporation was in existence (or if both, the shorter
of such periods)
shall be substituted for such 5-year period.
I.R.C. § 384(c) Definitions —
For purposes of this section—
I.R.C. § 384(c)(1) Recognized Built-In Gain
I.R.C. § 384(c)(1)(A) In General —
The term “recognized built-in gain” means any gain recognized during the recognition
period on the disposition of any asset except to the extent the gain corporation
(or, in any case described in subsection (a)(1)(B),
the acquiring corporation) establishes that—
I.R.C. § 384(c)(1)(A)(i) —
such asset was not held by the gain corporation on the acquisition date, or
I.R.C. § 384(c)(1)(A)(ii) —
such gain exceeds the excess (if any)
of—
I.R.C. § 384(c)(1)(A)(ii)(I) —
the fair market value of such asset on the acquisition date, over
I.R.C. § 384(c)(1)(A)(ii)(II) —
the adjusted basis of such asset on such date.
I.R.C. § 384(c)(1)(B) Treatment Of Certain Income Items —
Any item of income which is properly taken into account for any recognition period
taxable year but which is attributable to periods before the acquisition date shall
be treated as a recognized built-in gain for the taxable year in which it is properly
taken into account and shall be taken into account in determining the amount of the
net unrealized built-in gain.
I.R.C. § 384(c)(1)(C) Limitation —
The amount of the recognized built-in gains for any recognition period taxable year
shall not exceed—
I.R.C. § 384(c)(1)(C)(i) —
the net unrealized built-in gain, reduced by
I.R.C. § 384(c)(1)(C)(ii) —
the recognized built-in gains for prior years ending in the recognition period which
(but for this section) would have been offset by preacquisition losses.
I.R.C. § 384(c)(2) Acquisition Date —
The term “acquisition date” means—
I.R.C. § 384(c)(2)(A) —
in any case described in subsection (a)(1)(A), the date on which the acquisition of control occurs, or
I.R.C. § 384(c)(2)(B) —
in any case described in subsection (a)(1)(B), the date of the transfer in the reorganization.
I.R.C. § 384(c)(3) Preacquisition Loss
I.R.C. § 384(c)(3)(A) In General —
The term “preacquisition loss” means—
I.R.C. § 384(c)(3)(A)(i) —
any net operating loss carryforward to the taxable year in which the acquisition
date occurs, and
I.R.C. § 384(c)(3)(A)(ii) —
any net operating loss for the taxable year in which the acquisition date occurs
to the extent such loss is allocable to the period in such year on or before the
acquisition date.
Except as provided in regulations, the net operating
loss shall, for purposes of clause (ii), be allocated ratably to each day in the
year.
I.R.C. § 384(c)(3)(B) Treatment Of Recognized Built-In Loss —
In the case of a corporation with a net unrealized built-in loss, the term “preacquisition
loss” includes any recognized built-in loss.
I.R.C. § 384(c)(4) Gain Corporation —
The term “gain corporation” means any corporation with a net unrealized built-in
gain.
I.R.C. § 384(c)(5) Control —
The term “control” means ownership of stock in a corporation which meets the requirements
of section 1504(a)(2).
I.R.C. § 384(c)(6) Treatment Of Members Of Same Group —
Except as provided in regulations and except for purposes of subsection (b), all corporations which are members of the same affiliated group immediately before
the acquisition date shall be treated as 1 corporation. To the extent provided in
regulations, section 1504 shall be applied without regard to subsection (b) thereof for purposes of the preceding sentence.
I.R.C. § 384(c)(7) Treatment Of Predecessors And Successors —
Any reference in this section to a corporation shall include a reference to any
predecessor or successor thereof.
I.R.C. § 384(c)(8) Other Definitions —
Except as provided in regulations, the terms “net unrealized built-in gain”, “net
unrealized built-in loss”, “recognized built-in loss”, “recognition period”, and
“recognition period taxable year”, have the same respective meanings as when used
in section 382(h), except that the acquisition date shall be taken into account in lieu of the change
date.
I.R.C. § 384(d) Limitation Also To Apply To Excess Credits Or Net Capital Losses —
Rules similar to the rules of subsection (a) shall also apply in the case of any excess credit (as defined in section 383(a)(2)) or net capital loss.
I.R.C. § 384(e) Ordering Rules For Net Operating Losses, Etc.
I.R.C. § 384(e)(1) Carryover Rules —
If any preacquisition loss may not offset a recognized built-in gain by reason of
this section, such gain shall not be taken into account in determining under section
172(b)(2) the amount of such loss which may be carried to other taxable years. A similar rule
shall apply in the case of any excess credit or net capital loss limited by reason
of subsection (d).
I.R.C. § 384(e)(2) Ordering Rule For Losses Carried From Same Taxable Year —
In any case in which—
I.R.C. § 384(e)(2)(A) —
a preacquisition loss for any taxable year is subject to limitation under subsection
(a), and
I.R.C. § 384(e)(2)(B) —
a net operating loss from such taxable year is not subject to such limitation,
taxable income shall be treated as having been offset 1st by the loss subject to
such limitation.
I.R.C. § 384(f) Regulations —
The Secretary shall prescribe such regulations as may be necessary to carry out
the purposes of this section, including regulations to ensure that the purposes of
this section may not be circumvented through—
I.R.C. § 384(f)(1) —
the use of any provision of law or regulations (including subchapter K of this chapter),
or
I.R.C. § 384(f)(2) —
contributions of property to a corporation.
(Added Pub. L. 100-203, title X, Sec. 10226(a), Dec. 22, 1987, 101 Stat. 1330-414, and amended Pub. L. 100-647, title II, Sec. 2004(m)(1)-(4), Nov. 10, 1988, 102 Stat. 3606, 3607; Pub. L. 101-239, title VII, Sec. 7812(c)(1), Dec. 19, 1989, 103 Stat. 2412.)
BACKGROUND NOTES
AMENDMENTS
1989 - Subsec. (e)(1). Pub. L. 101-239 substituted ‘built-in gain’
for ‘build-in gain’.
1988 - Subsec. (a). Pub. L. 100-647, Sec. 2004(m)(1)(A), amended subsec. (a) generally, making changes in substance and structure.
Subsec. (b). Pub. L. 100-647, Sec. 2004(m)(3), substituted ‘corporations under common control’ for ‘50 percent of gain corporation
held’ in heading and amended text generally. Prior to amendment, text read as follows:
‘Subsection (a) shall not apply if more than 50 percent of the stock
(by vote and value) of the gain corporation was held throughout the 5-year period
ending on the acquisition date -
‘(1) in any case described in subsection (a)(1), by members of the affiliated group
referred to in subsection (a)(1), or
‘(2) in any case described in subsection (a)(2), by the acquiring corporation or members
of such acquiring corporation's affiliated group.
For purposes of the preceding sentence, stock described in section 1504(a)(4) shall
not be taken into account.'
Subsec. (c)(1)(A). Pub. L. 100-647, Sec. 2004(m)(1)(D), substituted ‘subsection (a)(1)(B)’ for ‘subsection (a)(2)’.
Subsec. (c)(2). Pub. L. 100-647, Sec. 2004(m)(1)(C), amended par. (2) generally. Prior to amendment, par. (2) read as follows:
‘The term ‘acquisition date’ means the date on which the gain corporation becomes
a member of the affiliated group or, in any case described in subsection (a)(2), the
date of the distribution or transfer in the liquidation or reorganization.'
Subsec. (c)(4) to (8). Pub. L. 100-647, Sec. 2004(m)(1)(B), redesignated par. (4) as (8) and added pars. (4) to (7).
Subsecs. (e), (f). Pub. L. 100-647, Sec. 2004(m)(2),
(4), substituted ‘a corporation’ for ‘the gain corporation’ in subsec.
(e)(2), redesignated subsec. (e) as (f), and added subsec. (e).
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-239 effective, except as otherwise provided, as if included in the provision of the Technical
and Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such amendment relates, see section 7817 of Pub. L. 101-239, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise provided, as if included in the provisions of the
Revenue Act of 1987, Pub. L. 100-203, title X, to which such amendment relates, see section 2004(u) of Pub. L. 100-647, set out as a note under section 56 of this title.
EFFECTIVE DATE
Section 10226(c) of Pub. L. 100-203 provided that: ‘The amendments made by this section
(enacting this section) shall apply in cases where the acquisition date (as defined
in section 384(c)(2)
of the Internal Revenue Code of 1986 as added by this section)
is after December 15, 1987; except that such amendments shall not apply in the case
of any transaction pursuant to -
‘(1) a binding written contract in effect on or before December 15, 1987, or
‘(2) a letter of intent or agreement of merger signed on or before December 15, 1987.’
ELECTION TO HAVE AMENDMENTS BY PUB. L. 100-647 NOT APPLY
Section 2004(m)(5) of Pub. L. 100-647 provided that: ‘In any case where the acquisition date (as defined in section 384(c)(2)
of the 1986 Code as amended by this subsection) is before March 31, 1988, the acquiring
corporation may elect to have the amendments made by this subsection not apply. Such
an election shall be made in such manner as the Secretary of the Treasury or his delegate
shall prescribe and shall be made not later than the later of the due date (including
extensions) for filing the return for the taxable year of the acquiring corporation
in which the acquisition date occurs or the date 120 days after the date of the enactment
of this Act (Nov. 10, 1989). Such an election, once made, shall be irrevocable.’
