r/title-26-INTERNAL-REVENUE-CODE wiki — defined terms

“photographer” applies in that section

The term “photographer” means any individual if the personal efforts of such individual create (or may reasonably be expected to create) a photograph or photographic negative or transparency. (C) Artist (i) In general

“preproductive period” applies in that section

the term “preproductive period” means— (i) in the case of a plant which will have more than 1 crop or yield, the period before the 1st marketable crop or yield from such plant, or (ii) in the case of any other plant, the period before such plant is reasonably expected to be disposed of. For purposes of this subparagraph, use by the taxpayer in a farming business of any supply produced in such business shall be treated as a disposition.

“produce” applies in that section

The term “produce” includes construct, build, install, manufacture, develop, or improve. (2) Treatment of property produced under contract for the taxpayer The taxpayer shall be treated as producing any property produced for the taxpayer under a contract with the taxpayer; except that only costs paid or incurred by the taxpayer (whether under such contract or otherwise) shall be taken into account in applying subsection (a) to the taxpayer. (h) Exemption for free lance authors, photographers, and artists (1) In general Nothing in this section shall require the capitalization of any qualified creative expense. (2) Qualified creative expense For purposes of this subsection,

“production expenditures” applies in that section

The term “production expenditures” means the costs (whether or not incurred during the production period) required to be capitalized under subsection (a) with respect to the property. (g) Production For purposes of this section— (1) In general

“production period” applies in that section

The term “production period” means, when used with respect to any property, the period— (i) beginning on the date on which production of the property begins, and (ii) except as provided in paragraph (4), ending on the date on which the property is ready to be placed in service or is ready to be held for sale. (C) Production expenditures

“qualified creative expense” applies in that section

the term “qualified creative expense” means any expense— (A) which is paid or incurred by an individual in the trade or business of such individual (other than as an employee) of being a writer, photographer, or artist, and (B) which, without regard to this section, would be allowable as a deduction for the taxable year. Such term does not include any expense related to printing, photographic plates, motion picture films, video tapes, or similar items. (3) Definitions For purposes of this subsection— (A) Writer

“qualified employee-owner” applies in that section

the term “qualified employee-owner” means any individual who is an employee-owner of the corporation (as defined in section 269A(b)(2)) and who is a writer, photographer, or artist. (i) Exemption for certain small businesses (1) In general In the case of any taxpayer (other than a tax shelter prohibited from using the cash receipts and disbursements method of accounting under section 448(a)(3)) which meets the gross receipts test of section 448(c) for any taxable year, this section shall not apply with respect to such taxpayer for such taxable year. (2) Application of gross receipts test to individuals, etc.

“recapture amount” applies in that section

the term “recapture amount” means any amount allowable as a deduction to the taxpayer which, but for an election under subsection (d)(3), would have been capitalized with respect to the plant. (2) Effects of election on depreciation (A) In general If the taxpayer (or any related person) makes an election under subsection (d)(3), the provisions of section 168(g)(2) (relating to alternative depreciation) shall apply to all property of the taxpayer used predominantly in the farming business and placed in service in any taxable year during which any such election is in effect. (B) Related person For purposes of subparagraph (A),

“related person” applies in that section

the term “related person” means— (i) the taxpayer and members of the taxpayer’s family, (ii) any corporation (including an S corporation) if 50 percent or more (in value) of the stock of such corporation is owned (directly or through the application of section 318) by the taxpayer or members of the taxpayer’s family, (iii) a corporation and any other corporation which is a member of the same controlled group described in section 1563(a)(1), and (iv) any partnership if 50 percent or more (in value) of the interests in such partnership is owned directly or indirectly by the taxpayer or members of the taxpayer’s family. (C) Members of family For purposes of this paragraph,

“tangible personal property” applies in that section

the term “tangible personal property” shall include a film, sound recording, video tape, book, or similar property. (c) General exceptions (1) Personal use property This section shall not apply to any property produced by the taxpayer for use by the taxpayer other than in a trade or business or an activity conducted for profit. (2) Research and experimental expenditures This section shall not apply to any amount allowable as a deduction under section 174 or 174A. (3) Certain development and other costs of oil and gas wells or other mineral property This section shall not apply to any cost allowable as a deduction under section 167(h), 179B, 263(c), 263(i), 291(b)(2), 616, or 617.

“writer” applies in that section

The term “writer” means any individual if the personal efforts of such individual create (or may reasonably be expected to create) a literary manuscript, musical composition (including any accompanying words), or dance score. (B) Photographer

“20-percent owner” applies in that section

the term “20-percent owner” means— (A) if the taxpayer is a corporation, any person who owns directly 20 percent or more of the outstanding stock of the corporation or stock possessing 20 percent or more of the total combined voting power of all stock of the corporation, or (B) if the taxpayer is not a corporation, any person who owns 20 percent or more of the capital or profits interest in the taxpayer.

“applicable period” applies in that section

the term “applicable period” means the 12-month period beginning on the date the policy is issued (and each successive 12-month period thereafter) unless the taxpayer elects a number of months (not greater than 12) other than such 12-month period to be its applicable period. Such an election shall be made not later than the 90th day after the date of the enactment of this sentence and, if made, shall apply to the taxpayer’s first taxable year ending on or after October 13, 1995 , and all subsequent taxable years unless revoked with the consent of the Secretary. (3) Key person For purposes of paragraph (1),

“interest expense” applies in that section

The term “interest expense” means the aggregate amount allowable to the taxpayer as a deduction for interest (within the meaning of section 265(b)(4)) for the taxable year (determined without regard to this subsection, section 265(b), and section 291). (8) Aggregation rules (A) In general All members of a controlled group (within the meaning of subsection (e)(5)(B)) shall be treated as 1 taxpayer for purposes of this subsection. (B) Treatment of insurance companies This subsection shall not apply to an insurance company subject to tax under subchapter L, and subparagraph (A) shall be applied without regard to any member of an affiliated group which is an insurance company.

“key person” applies in that section

the term “key person” means an officer or 20-percent owner, except that the number of individuals who may be treated as key persons with respect to any taxpayer shall not exceed the greater of— (A) 5 individuals, or (B) the lesser of 5 percent of the total officers and employees of the taxpayer or 20 individuals. (4) 20-percent owner For purposes of this subsection,

“unborrowed policy cash value” applies in that section

the term “unborrowed policy cash value” means, with respect to any life insurance policy or annuity or endowment contract, the excess of— (A) the cash surrender value of such policy or contract determined without regard to any surrender charge, over (B) the amount of any loan with respect to such policy or contract.

“financial institution” applies in that section

the term “financial institution” means any person who— (A) accepts deposits from the public in the ordinary course of such person’s trade or business, and is subject to Federal or State supervision as a financial institution, or (B) is a corporation described in section 585(a)(2).

“interest” applies in that section

The term “interest” includes any amount paid or incurred— (i) by any person making a short sale in connection with personal property used in such short sale, or (ii) by any other person for the use of any collateral with respect to such short sale. (B) Exception where no return on cash collateral If— (i) the taxpayer provides cash as collateral for any short sale, and (ii) the taxpayer receives no material earnings on such cash during the period of the sale, subparagraph (A)(i) shall not apply to such short sale.

“interest expense” applies in that section

The term “interest expense” means the aggregate amount allowable to the taxpayer as a deduction for interest for the taxable year (determined without regard to this subsection, section 264, and section 291). For purposes of the preceding sentence,

“qualified borrower” applies in that section

the term “qualified borrower” means a borrower which is a State or political subdivision thereof or an organization described in section 501(c)(3) and exempt from taxation under section 501(a). (4) Definitions For purposes of this subsection— (A) Interest expense

“qualified financing issue” applies in that section

the term “qualified financing issue” means any composite, pooled, or other conduit financing issue the proceeds of which are used directly or indirectly to make or finance loans to 1 or more ultimate borrowers each of whom is a qualified borrower. (v) Qualified portion For purposes of this subparagraph,

“qualified portion” applies in that section

the term “qualified portion” means that portion of the proceeds which are used with respect to each qualified borrower under the issue. (vi) Qualified borrower For purposes of this subparagraph,

“qualified small issuer” applies in that section

the term “qualified small issuer” means, with respect to obligations issued during any calendar year, any issuer if the reasonably anticipated amount of tax-exempt obligations (other than obligations described in clause (ii)) which will be issued by such issuer during such calendar year does not exceed $10,000,000.

“qualified tax-exempt obligation” applies in that section

the term “qualified tax-exempt obligation” means a tax-exempt obligation— (I) which is issued after August 7, 1986 , by a qualified small issuer, (II) which is not a private activity bond (as defined in section 141), and (III) which is designated by the issuer for purposes of this paragraph.

“tax-exempt obligation” applies in that section

The term “tax-exempt obligation” means any obligation the interest on which is wholly exempt from taxes imposed by this subtitle. Such term includes shares of stock of a regulated investment company which during the taxable year of the holder thereof distributes exempt-interest dividends. (5) Financial institution For purposes of this subsection,

“controlled group” applies in that section

the term “controlled group” has the meaning given to such term by section 1563(a), except that— (A) “more than 50 percent” shall be substituted for “at least 80 percent” each place it appears in section 1563(a), and (B) the determination shall be made without regard to subsections (a)(4) and (e)(3)(C) of section 1563.

“low-income housing” applies in that section

the term “low-income housing” means— (i) any interest in property described in clause (i), (ii), (iii), or (iv) of section 1250(a)(1)(B), and (ii) any interest in a partnership owning such property. (6) Cross reference For additional rules relating to partnerships, see section 707(b). (f) Controlled group defined; special rules applicable to controlled groups (1) Controlled group defined For purposes of this section,

“pass-thru entity” applies in that section

the term “pass-thru entity” means— (A) a partnership, and (B) an S corporation. (3) Constructive ownership in the case of partnerships For purposes of determining ownership of a capital interest or profits interest of a partnership, the principles of subsection (c) shall apply, except that— (A) paragraph (3) of subsection (c) shall not apply, and (B) interests owned (directly or indirectly) by or for a C corporation shall be considered as owned by or for any shareholder only if such shareholder owns (directly or indirectly) 5 percent or more in value of the stock of such corporation.

“qualified 5-percent or less partner” applies in that section

the term “qualified 5-percent or less partner” means any partner who has (directly or indirectly) an interest of 5 percent or less in the aggregate capital and profits interests of the partnership but only if— (i) such partner owned the low-income housing at all times during the 2-year period ending on the date such housing was transferred to the partnership, or (ii) such partnership acquired the low-income housing pursuant to a purchase, assignment, or other transfer from the Department of Housing and Urban Development or any State or local housing authority.

“qualified expenses and interest” applies in that section

the term “qualified expenses and interest” means any expense or interest incurred by the partnership with respect to low-income housing held by the partnership but— (i) only if the amount of such expense or interest (as the case may be) is unconditionally required to be paid by the partnership not later than 10 years after the date such amount was incurred, and (ii) in the case of such interest, only if such interest is incurred at an annual rate not in excess of 12 percent. (D) Low-income housing For purposes of this paragraph,

“disqualified related party amount” applies in that section

The term “disqualified related party amount” means any interest or royalty paid or accrued to a related party to the extent that— (A) such amount is not included in the income of such related party under the tax law of the country of which such related party is a resident for tax purposes or is subject to tax, or (B) such related party is allowed a deduction with respect to such amount under the tax law of such country. Such term shall not include any payment to the extent such payment is included in the gross income of a United States shareholder under section 951(a). (2) Related party

“hybrid entity” applies in that section

the term “hybrid entity” means any entity which is either— (1) treated as fiscally transparent for purposes of this chapter but not so treated for purposes of the tax law of the foreign country of which the entity is resident for tax purposes or is subject to tax, or (2) treated as fiscally transparent for purposes of such tax law but not so treated for purposes of this chapter.

“hybrid transaction” applies in that section

the term “hybrid transaction” means any transaction, series of transactions, agreement, or instrument one or more payments with respect to which are treated as interest or royalties for purposes of this chapter and which are not so treated for purposes the tax law of the foreign country of which the recipient of such payment is resident for tax purposes or is subject to tax. (d) Hybrid entity For purposes of this section,

“related party” applies in that section

The term “related party” means a related person as defined in section 954(d)(3), except that such section shall be applied with respect to the person making the payment described in paragraph (1) in lieu of the controlled foreign corporation otherwise referred to in such section. (c) Hybrid transaction For purposes of this section,

“employee-owner” applies in that section

The term “employee-owner” means any employee who owns, on any day during the taxable year, more than 10 percent of the outstanding stock of the personal service corporation. For purposes of the preceding sentence, section 318 shall apply, except that “5 percent” shall be substituted for “50 percent” in section 318(a)(2)(C). (3) Related persons All related persons (within the meaning of section 144(a)(3)) shall be treated as 1 entity.

“personal service corporation” applies in that section

The term “personal service corporation” means a corporation the principal activity of which is the performance of personal services and such services are substantially performed by employee-owners. (2) Employee-owner

“entity” applies in that section

The term “entity” means any corporation, partnership, trust, association, estate, or other form of carrying on a business or activity. (2) Stapled entities

“stapled entities” applies in that section

The term “stapled entities” means any group of 2 or more entities if more than 50 percent in value of the beneficial ownership in each of such entities consists of stapled interests. (3) Stapled interests Two or more interests are stapled interests if, by reason of form of ownership, restrictions on transfer, or other terms or conditions, in connection with the transfer of 1 of such interests the other such interests are also transferred or required to be transferred.

“contributions” applies in that section

the term “contributions” includes a gift, subscription, loan, advance, or deposit, of money, or anything of value, and includes a contract, promise, or agreement to make a contribution, whether or not legally enforceable. (3) Expenditures For purposes of paragraph (1)(C),

“expenditures” applies in that section

the term “expenditures” includes a payment, distribution, loan, advance, deposit, or gift, of money, or anything of value, and includes a contract, promise, or agreement to make an expenditure, whether or not legally enforceable.

“political party” applies in that section

the term “political party” means— (A) a political party; (B) a national, State, or local committee of a political party; or (C) a committee, association, or organization which accepts contributions or makes expenditures for the purpose of influencing or attempting to influence the election of presidential or vice-presidential electors or of any individual whose name is presented for election to any Federal, State, or local elective public office, whether or not such individual is elected. (2) Contributions For purposes of paragraph (1)(C),

“beneficiary country” applies in that section

the term “beneficiary country” has the meaning given to such term by section 212(a)(1)(A) of the Caribbean Basin Economic Recovery Act; except that such term shall include Bermuda. (C) Authority to conclude exchange of information agreements (i) In general The Secretary is authorized to negotiate and conclude an agreement for the exchange of information with any beneficiary country.

“cruise ship” applies in that section

The term “cruise ship” means any vessel sailing within or without the territorial waters of the United States. (4) Subsection to apply to employer as well as to traveler (A) Except as provided in subparagraph (B), this subsection shall apply to deductions otherwise allowable under section 162 to any person, whether or not such person is the individual attending the convention, seminar, or similar meeting. (B) This subsection shall not deny a deduction to any person other than the individual attending the convention, seminar, or similar meeting with respect to any amount paid by such person to or on behalf of such individual if includible in the gross income of such individual.

“employee achievement award” applies in that section

The term “employee achievement award” means an item of tangible personal property which is— (I) transferred by an employer to an employee for length of service achievement or safety achievement, (II) awarded as part of a meaningful presentation, and (III) awarded under conditions and circumstances that do not create a significant likelihood of the payment of disguised compensation.

“gift” applies in that section

the term “gift” means any item excludable from gross income of the recipient under section 102 which is not excludable from his gross income under any other provision of this chapter, but such term does not include— (A) an item having a cost to the taxpayer not in excess of $4.00 on which the name of the taxpayer is clearly and permanently imprinted and which is one of a number of identical items distributed generally by the taxpayer, or (B) a sign, display rack, or other promotional material to be used on the business premises of the recipient.

“North American area” applies in that section

The term “North American area” means the United States, its possessions, and the Trust Territory of the Pacific Islands, and Canada and Mexico. (B) Cruise ship

“per diem amounts” applies in that section

the term “per diem amounts” means the highest amount generally allowable with respect to a day to employees of the executive branch of the Federal Government for per diem while away from home but serving in the United States. (B) Exceptions Subparagraph (A) shall not apply to— (i) any expense allocable to a convention, seminar, or other meeting which is held on any cruise ship, and (ii) any expense described in paragraph (2), (3), (4), (7), (8), or (9) of subsection (e). (2) Travel as form of education No deduction shall be allowed under this chapter for expenses for travel as a form of education.

“qualified confidential information” applies in that section

the term “qualified confidential information” means information which is subject to the nondisclosure provisions of any local law of the beneficiary country regarding bank secrecy or ownership of bearer shares. (iv) Civil tax purposes For purposes of this subparagraph, the determination of whether information is sought only for civil tax purposes shall be made by the requesting party. (D) Coordination with other provisions Any exchange of information agreement negotiated under subparagraph (C) shall be treated as an income tax convention for purposes of section 6103(k)(4).

“qualified nonpersonal use vehicle” applies in that section

the term “qualified nonpersonal use vehicle” means any vehicle which, by reason of its nature, is not likely to be used more than a de minimis amount for personal purposes. (j) Employee achievement awards (1) General rule No deduction shall be allowed under section 162 or section 212 for the cost of an employee achievement award except to the extent that such cost does not exceed the deduction limitations of paragraph (2).

“qualified plan award” applies in that section

The term “qualified plan award” means an employee achievement award awarded as part of an established written plan or program of the taxpayer which does not discriminate in favor of highly compensated employees (within the meaning of section 414(q)) as to eligibility or benefits. (ii) Limitation An employee achievement award shall not be treated as a qualified plan award for any taxable year if the average cost of all employee achievement awards which are provided by the employer during the year, and which would be qualified plan awards but for this subparagraph, exceeds $400.

“specified individual” applies in that section

the term “specified individual” means any individual who— (I) is subject to the requirements of section 16(a) of the Securities Exchange Act of 1934 with respect to the taxpayer or a related party to the taxpayer, or (II) would be subject to such requirements if the taxpayer (or such related party) were an issuer of equity securities referred to in such section. For purposes of this clause, a person is a related party with respect to another person if such person bears a relationship to such other person described in section 267(b) or 707(b).

“political party” applies in that section

The term “political party” means— (A) a political party; (B) a National, State, or local committee of a political party; or (C) a committee, association, or organization, whether incorporated or not, which directly or indirectly accepts contributions (as defined in section 271(b)(2)) or make expenditures (as defined in section 271(b)(3)) for the purpose of influencing or attempting to influence the selection, nomination, or election of any individual to any Federal, State, or local elective public office, or the election of presidential and vice-presidential electors, whether or not such individual or electors are selected, nominated, or elected.

“affiliated group” applies in that section

the term “affiliated group” has the meaning assigned to such term by section 1504(a), except that all corporations other than the acquired corporation shall be treated as includible corporations (without any exclusion under section 1504(b)) and the acquired corporation shall not be treated as an includible corporation. (h) Changes in obligation For purposes of this section— (1) Any extension, renewal, or refinancing of an obligation evidencing a preexisting indebtedness shall not be deemed to be the issuance of a new obligation.

“annual interest to be paid or incurred” applies in that section

The term “annual interest to be paid or incurred” means— (A) if subparagraph (B) does not apply, the annual interest to be paid or incurred by the issuing corporation only, determined by reference to its total indebtedness outstanding, or (B) if projected earnings are determined under clause (ii) of paragraph (3)(A), the annual interest to be paid or incurred by both the issuing corporation and the acquired corporation, determined by reference to their combined total indebtedness outstanding.

“corporate acquisition indebtedness” applies in that section

the term “corporate acquisition indebtedness” means any obligation evidenced by a bond, debenture, note, or certificate or other evidence of indebtedness issued by a corporation (hereinafter in this section referred to as “issuing corporation”) if— (1) such obligation is issued to provide consideration for the acquisition of— (A) stock in another corporation (hereinafter in this section referred to as “acquired corporation”), or (B) assets of another corporation (hereinafter in this section referred to as “acquired corporation”) pursuant to a plan under which at least two-thirds (in value) of all the assets (excluding money) used in trades and businesses carried on by such corporation are …

“lending or finance business” applies in that section

the term “lending or finance business” means a business of making loans or purchasing or discounting accounts receivable, notes, or installment obligations. (d) Taxable years to which applicable In applying this section— (1) First year of disallowance The deduction of interest on any obligation shall not be disallowed under subsection (a) before the first taxable year of the issuing corporation as of the last day of which the application of either subparagraph (A) or subparagraph (B) of subsection (b)(4) results in such obligation being corporate acquisition indebtedness.

“projected earnings” applies in that section

The term “projected earnings” means the “average annual earnings” (as defined in subparagraph (B)) of— (i) the issuing corporation only, if clause (ii) does not apply, or (ii) both the issuing corporation and the acquired corporation, in any case where the issuing corporation has acquired control (as defined in section 368(c)), or has acquired substantially all of the properties, of the acquired corporation.

“ratio of debt to equity” applies in that section

The term “ratio of debt to equity” means the ratio which the total indebtedness of the issuing corporation bears to the sum of its money and all its other assets (in an amount equal to their adjusted basis for determining gain) less such total indebtedness. (3) Projected earnings;

“dwelling unit” applies in that section

The term “dwelling unit” includes a house, apartment, condominium, mobile home, boat, or similar property, and all structures or other property appurtenant to such dwelling unit. (B) Exception The term “dwelling unit” does not include that portion of a unit which is used exclusively as a hotel, motel, inn, or similar establishment. (2) Personal use by shareholders of S corporation In the case of an S corporation, subparagraphs (A) and (B) of subsection (d)(2) shall be applied by substituting “any shareholder of the S corporation” for “the taxpayer” each place it appears.

“principal place of business” applies in that section

the term “principal place of business” includes a place of business which is used by the taxpayer for the administrative or management activities of any trade or business of the taxpayer if there is no other fixed location of such trade or business where the taxpayer conducts substantial administrative or management activities of such trade or business.

“qualified ownership interest” applies in that section

the term “qualified ownership interest” means an undivided interest for more than 50 years in the entire dwelling unit and appurtenant land being acquired in the transaction to which the shared equity financing agreement relates.

“qualified rental period” applies in that section

the term “qualified rental period” means a consecutive period of— (i) 12 or more months which begins or ends in such taxable year, or (ii) less than 12 months which begins in such taxable year and at the end of which such dwelling unit is sold or exchanged, and for which such unit is rented, or is held for rental, at a fair rental.

“shared equity financing agreement” applies in that section

the term “shared equity financing agreement” means an agreement under which— (i) 2 or more persons acquire qualified ownership interests in a dwelling unit, and (ii) the person (or persons) holding 1 or more of such interests— (I) is entitled to occupy the dwelling unit for use as a principal residence, and (II) is required to pay rent to 1 or more other persons holding qualified ownership interests in the dwelling unit. (D) Qualified ownership interest For purposes of this paragraph,

“5-percent owner” applies in that section

The term “5-percent owner” means any person who is a 5-percent owner with respect to the taxpayer (as defined in section 416(i)(1)(B)(i)). (ii) Related person

“business use percentage” applies in that section

The term “business use percentage” means the percentage of the use of any listed property during any taxable year which is a qualified business use. (B) Qualified business use Except as provided in subparagraph (C),

“C-CPI-U automobile component” applies in that section

The term “C-CPI-U automobile component” means the automobile component of the Chained Consumer Price Index for All Urban Consumers (as described in section 1(f)(6)). (8) Unrecovered basis For purposes of subsection (a)(1),

“employee use” applies in that section

the term “employee use” means any use in connection with the performance of services as an employee. (4) Listed property (A) In general Except as provided in subparagraph (B),

“excess depreciation” applies in that section

the term “excess depreciation” means the excess (if any) of— (i) the amount of the depreciation deductions allowable with respect to the property for taxable years before the 1st taxable year in which the property was not predominantly used in a qualified business use, over (ii) the amount which would have been so allowable if the property had not been predominantly used in a qualified business use for the taxable year in which it was placed in service.

“listed property” applies in that section

the term “listed property” means— (i) any passenger automobile, (ii) any other property used as a means of transportation, (iii) any property of a type generally used for purposes of entertainment, recreation, or amusement, and (iv) any other property of a type specified by the Secretary by regulations. (B) Exception for property used in business of transporting persons or property Except to the extent provided in regulations, clause (ii) of subparagraph (A) shall not apply to any property substantially all of the use of which is in a trade or business of providing to unrelated persons services consisting of the transportation of persons or property for compensation or hire.

“passenger automobile” applies in that section

the term “passenger automobile” means any 4-wheeled vehicle— (i) which is manufactured primarily for use on public streets, roads, and highways, and (ii) which is rated at 6,000 pounds unloaded gross vehicle weight or less. In the case of a truck or van, clause (ii) shall be applied by substituting “gross vehicle weight” for “unloaded gross vehicle weight”.

“qualified business use” applies in that section

the term “qualified business use” means any use in a trade or business of the taxpayer. (C) Exception for certain use by 5-percent owners and related persons (i) In general The term “qualified business use” shall not include— (I) leasing property to any 5-percent owner or related person, (II) use of property provided as compensation for the performance of services by a 5-percent owner or related person, or (III) use of property provided as compensation for the performance of services by any person not described in subclause (II) unless an amount is included in the gross income of such person with respect to such use, and, where required, there was withholding under chapter 24.

“related person” applies in that section

The term “related person” means any person related to the taxpayer (within the meaning of section 267(b)). (7) Automobile price inflation adjustment (A) In general In the case of any passenger automobile placed in service after 2018, subsection (a) shall be applied by increasing each dollar amount contained in such subsection by the automobile price inflation adjustment for the calendar year in which such automobile is placed in service. Any increase under the preceding sentence shall be rounded to the nearest multiple of $100 (or if the increase is a multiple of $50, such increase shall be increased to the next higher multiple of $100).

“unrecovered basis” applies in that section

the term “unrecovered basis” means the adjusted basis of the passenger automobile determined after the application of subsection (a) and as if all use during the recovery period were use in a trade or business (including the holding of property for the production of income). (9) All taxpayers holding interests in passenger automobile treated as 1 taxpayer All taxpayers holding interests in any passenger automobile shall be treated as 1 taxpayer for purposes of applying subsection (a) to such automobile, and the limitations of subsection (a) shall be allocated among such taxpayers in proportion to their interests in such automobile.

“annualized includible compensation for the base period” applies in that section

The term “annualized includible compensation for the base period” means the average annual compensation which— (A) was payable by the corporation with respect to which the change in ownership or control described in paragraph (2)(A) of subsection (b) occurs, and (B) was includible in the gross income of the disqualified individual for taxable years in the base period. (2) Base period

“applicable severance from employment” applies in that section

The term “applicable severance from employment” means any severance from employment of a covered executive— (i) by reason of an involuntary termination of the executive by the employer, or (ii) in connection with any bankruptcy, liquidation, or receivership of the employer. (C) Coordination and other rules (i) In general If a payment which is treated as a parachute payment by reason of this subsection is also a parachute payment determined without regard to this subsection, this subsection shall not apply to such payment.

“base amount” applies in that section

The term “base amount” means the individual’s annualized includible compensation for the base period. (B) Allocation The portion of the base amount allocated to any parachute payment shall be an amount which bears the same ratio to the base amount as— (i) the present value of such payment, bears to (ii) the aggregate present value of all such payments.

“base period” applies in that section

The term “base period” means the period consisting of the most recent 5 taxable years ending before the date on which the change in ownership or control described in paragraph (2)(A) of subsection (b) occurs (or such portion of such period during which the disqualified individual performed personal services for the corporation). (3) Property transfers Any transfer of property— (A) shall be treated as a payment, and (B) shall be taken into account as its fair market value. (4) Present value Present value shall be determined by using a discount rate equal to 120 percent of the applicable Federal rate (determined under section 1274(d)), compounded semiannually.

“disqualified individual” applies in that section

the term “disqualified individual” means any individual who is— (1) an employee, independent contractor, or other person specified in regulations by the Secretary who performs personal services for any corporation, and (2) is an officer, shareholder, or highly-compensated individual. For purposes of this section, a personal service corporation (or similar entity) shall be treated as an individual.

“excess parachute payment” applies in that section

The term “excess parachute payment” means an amount equal to the excess of any parachute payment over the portion of the base amount allocated to such payment. (2) Parachute payment defined (A) In general

“parachute payment” applies in that section

The term “parachute payment” means any payment in the nature of compensation to (or for the benefit of) a disqualified individual if— (i) such payment is contingent on a change— (I) in the ownership or effective control of the corporation, or (II) in the ownership of a substantial portion of the assets of the corporation, and (ii) the aggregate present value of the payments in the nature of compensation to (or for the benefit of) such individual which are contingent on such change equals or exceeds an amount equal to 3 times the base amount. For purposes of clause (ii), payments not treated as parachute payments under paragraph (4)(A), (5), or (6) shall not be taken into account.

“adjusted taxable income” applies in that section

The term “adjusted taxable income” means taxable income determined without regard to— (A) any amount paid to an employee-owner which is includible in the gross income of such employee-owner, and (B) any net operating loss carryover to the extent such carryover is attributable to amounts described in subparagraph (A). (5) Personal service corporation

“applicable amount” applies in that section

The term “applicable amount” means any amount paid to an employee-owner which is includible in the gross income of such employee, other than— (A) any gain from the sale or exchange of property between the owner-employee and the corporation, or (B) any dividend paid by the corporation. (2) Employee-owner

“applicable percentage” applies in that section

The term “applicable percentage” means the percentage (not in excess of 95 percent) determined by dividing— (A) the applicable amounts paid or incurred during the 3 taxable years immediately preceding the taxable year, by (B) the adjusted taxable income of such corporation for such 3 taxable years. (d) Maximum deductible amount For purposes of this section,

“deferral period” applies in that section

The term “deferral period” has the meaning given to such term by section 444(b)(4). (B) Nondeferral period

“employee-owner” applies in that section

The term “employee-owner” has the meaning given such term by section 269A(b)(2) (as modified by section 441(i)(2)). (3) Nondeferral and deferral periods (A) Deferral period

“maximum deductible amount” applies in that section

the term “maximum deductible amount” means the sum of— (1) the applicable amounts paid during the deferral period, plus (2) an amount equal to the product of— (A) the amount determined under paragraph (1), divided by the number of months in the deferral period, multiplied by (B) the number of months in the nondeferral period. (e) Disallowance of net operating loss carrybacks No net operating loss carryback shall be allowed to (or from) any taxable year of a personal service corporation to which an election under section 444 applies. (f) Other definitions and special rules For purposes of this section— (1) Applicable amount

“nondeferral period” applies in that section

The term “nondeferral period” means the portion of the taxable year of the personal service corporation which occurs after the portion of such year constituting the deferral period. (4) Adjusted taxable income

“personal service corporation” applies in that section

The term “personal service corporation” has the meaning given to such term by section 441(i)(2).

“related terminal income” applies in that section

The term “related terminal income” means the income (determined in accordance with regulations prescribed by the Secretary) of a terminal railroad corporation derived— (A) from services or facilities of a character ordinarily and regularly provided by terminal railroad corporations for railroad corporations or for the employees, passengers, or shippers of railroad corporations; (B) from the use by persons other than railroad corporations of portions of a facility, or a service, which is used primarily for railroad purposes; (C) from any railroad corporation for services or facilities provided by such terminal railroad corporation in connection with railroad operations; and (D) from the …

“related terminal services” applies in that section

The term “related terminal services” includes only services, and the use of facilities, taken into account in computing related terminal income. (e) Regulations The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this section.

“terminal railroad corporation” applies in that section

The term “terminal railroad corporation” means a domestic railroad corporation which is not a member, other than as a common parent corporation, of an affiliated group (as defined in section 1504) and— (A) all of the shareholders of which are rail carriers subject to part A of subtitle IV of title 49; (B) the primary business of which is the providing of railroad terminal and switching facilities and services to rail carriers subject to part A of subtitle IV of title 49 and to the shippers and passengers of such railroad corporations; (C) a substantial part of the services of which for the taxable year is rendered to one or more of its shareholders; and (D) each shareholder of which …

“financial institution preference item” applies in that section

The term “financial institution preference item” includes the following: [(A) Repealed. Pub. L. 101–508, title XI, § 11801(c)(12)(B) , Nov. 5, 1990 , 104 Stat. 1388–527 ] (B) Interest on debt to carry tax-exempt obligations acquired after December 31, 1982 , and before August 8, 1986 (i) In general In the case of a financial institution which is a bank (as defined in section 585(a)(2)), the amount of interest on indebtedness incurred or continued to purchase or carry obligations acquired after December 31, 1982 , and before August 8, 1986 , the interest on which is exempt from taxes for the taxable year, to the extent that a deduction would (but for this paragraph or section 265(b)) be …

“integrated oil company” applies in that section

the term “integrated oil company” means, with respect to any taxable year, any producer of crude oil to whom subsection (c) of section 613A does not apply by reason of paragraph (2) or (4) of section 613A(d). (5) Coordination with cost depletion The portion of the adjusted basis of any property which is attributable to amounts to which paragraph (1) applied shall not be taken into account for purposes of determining depletion under section 611.

“interest” applies in that section

the term “interest” includes amounts (whether or not designated as interest) paid in respect of deposits, investment certificates, or withdrawable or repurchasable shares. (iv) Application of subparagraph to certain obligations issued after August 7, 1986 For application of this subparagraph to certain obligations issued after August 7, 1986 , see section 265(b)(3). That portion of any obligation not taken into account under paragraph (2)(A) of section 265(b) by reason of paragraph (7) of such section shall be treated for purposes of this section as having been acquired on August 7, 1986 . (2) Section 1245 and 1250 property

“section 1245 property” applies in that section

The terms “section 1245 property” and “section 1250 property” have the meanings given such terms by sections 1245(a)(3) and 1250(c), respectively.

“section 1250 property” applies in that section

The terms “section 1245 property” and “section 1250 property” have the meanings given such terms by sections 1245(a)(3) and 1250(c), respectively.

“20 percent corporate shareholder” applies in that section

the term “20 percent corporate shareholder” means, with respect to any distribution, any corporation which owns (directly or through the application of section 318)— (A) stock in the corporation making the distribution possessing at least 20 percent of the total combined voting power of all classes of stock entitled to vote, or (B) at least 20 percent of the total value of all stock of the distributing corporation (except nonvoting stock which is limited and preferred as to dividends), but only if, but for this subsection, the distributee corporation would be entitled to a deduction under section 243 or 245 with respect to such distribution.

“entity” applies in that section

the term “entity” means a partnership, estate, trust, or corporation; and;

“qualified trade or business” applies throughout its subchapter

the term “qualified trade or business” means any trade or business which— (A) was actively conducted throughout the 5-year period ending on the date of the redemption, and (B) was not acquired by the corporation within such period in a transaction in which gain or loss was recognized in whole or in part. (4) Redemption may be pro rata Whether or not a redemption meets the requirements of subparagraphs (A) and (B) of paragraph (2) shall be determined without regard to whether or not the redemption is pro rata with respect to all of the shareholders of the corporation.

“related person” applies in that section

the term “related person” means any person to whom ownership of stock in the corporation is (at the time of the distribution) attributable under section 318(a)(1) if such stock is further attributable to the entity under section 318(a)(3). (d) Redemptions treated as distributions of property Except as otherwise provided in this subchapter, if a corporation redeems its stock (within the meaning of section 317(b)), and if subsection (a) of this section does not apply, such redemption shall be treated as a distribution of property to which section 301 applies.

“affiliated group” applies in that section

The term “affiliated group” has the meaning given such term by section 1504(a). (ii) Intragroup stock

“BHC” applies in that section

The term “BHC” means a bank holding company (within the meaning of section 2(a) of the Bank Holding Company Act of 1956). (4) Treatment of certain intragroup transactions (A) In general In the case of any transfer described in subsection (a) of stock from 1 member of an affiliated group to another member of such group, proper adjustments shall be made to— (i) the adjusted basis of any intragroup stock, and (ii) the earnings and profits of any member of such group, to the extent necessary to carry out the purposes of this section. (B) Definitions For purposes of this paragraph— (i) Affiliated group

“intragroup stock” applies in that section

The term “intragroup stock” means any stock which— (I) is in a corporation which is a member of an affiliated group, and (II) is held by another member of such group. (5) Acquisitions by foreign corporations (A) In general In the case of any acquisition to which subsection (a) applies in which the acquiring corporation is a foreign corporation, the only earnings and profits taken into account under paragraph (2)(A) shall be those earnings and profits— (i) which are attributable (under regulations prescribed by the Secretary) to stock of the acquiring corporation owned (within the meaning of section 958(a)) by a corporation or individual which is— (I) a United States shareholder (within the …

“qualified minority shareholder” applies in that section

The term “qualified minority shareholder” means any shareholder who owns less than 10 percent (in value) of the stock of the BHC. For purposes of the preceding sentence, the rules of paragraph (3) of subsection (c) shall apply. (ii) BHC

“stock” applies in that section

the term “stock” means stock referred to in paragraph (1)(B) or (2)(A) of subsection (a). (ii) Extension of obligations, etc. For purposes of clause (i), an extension, renewal, or refinancing of a liability which meets the requirements of clause (i) shall be treated as meeting such requirements.

“purchase” applies in that section

the term “purchase” means— (A) any acquisition of stock, where (B) the basis of such stock is not determined in whole or in part by the reference to the adjusted basis of such stock in the hands of the person from whom acquired. (7) Cross reference For treatment of stripped interests in certain accounts or entities holding preferred stock, see section 1286(e). (f) Cross references For special rules— (1) Relating to the receipt of stock and stock rights in corporate organizations and reorganizations, see part III (sec. 351 and following). (2) In the case of a distribution which results in a gift, see section 2501 and following.

“shareholder” applies in that section

the term “shareholder” includes a holder of rights or of convertible securities. (e) Treatment of purchaser of stripped preferred stock (1) In general If any person purchases after April 30, 1993 , any stripped preferred stock, then such person, while holding such stock, shall include in gross income amounts equal to the amounts which would have been so includible if such stripped preferred stock were a bond issued on the purchase date and having original issue discount equal to the excess, if any, of— (A) the redemption price for such stock, over (B) the price at which such person purchased such stock.

“stock” applies in that section

the term “stock” includes rights to acquire such stock. (2) Shareholders For purposes of subsections (b) and (c),

“stripped preferred stock” applies in that section

The term “stripped preferred stock” means any stock described in subparagraph (B) if there has been a separation in ownership between such stock and any dividend on such stock which has not become payable. (B) Description of stock Stock is described in this subsection if such stock— (i) is limited and preferred as to dividends and does not participate in corporate growth to any significant extent, and (ii) has a fixed redemption price. (6) Purchase For purposes of this subsection,

“section 306 stock” applies throughout its subchapter

the term “section 306 stock” means stock which meets the requirements of subparagraph (A), (B), or (C) of this paragraph. (A) Distributed to seller Stock (other than common stock issued with respect to common stock) which was distributed to the shareholder selling or otherwise disposing of such stock if, by reason of section 305(a), any part of such distribution was not includible in the gross income of the shareholder.

“construction period” applies in that section

The term “construction period” has the meaning given the term production period under section 263A(f)(4)(B). 2 (2) Intangible drilling costs and mineral exploration and development costs (A) Intangible drilling costs Any amount allowable as a deduction under section 263(c) in determining taxable income (other than costs incurred in connection with a nonproductive well)— (i) shall be capitalized, and (ii) shall be allowed as a deduction ratably over the 60-month period beginning with the month in which such amount was paid or incurred.

“construction period carrying charges” applies in that section

the term “construction period carrying charges” means all— (i) interest paid or accrued on indebtedness incurred or continued to acquire, construct, or carry property, (ii) property taxes, and (iii) similar carrying charges, to the extent such interest, taxes, or charges are attributable to the construction period for such property and would be allowable as a deduction in determining taxable income under this chapter for the taxable year in which paid or incurred. (C) Construction period

“inventory assets” applies in that section

The term “inventory assets” means stock in trade of the corporation, or other property of a kind which would properly be included in the inventory of the corporation if on hand at the close of the taxable year. (iii) Inventory amount The inventory amount of assets under the first-in, first-out method authorized by section 471 shall be determined— (I) if the corporation uses the retail method of valuing inventories under section 472, by using such method, or (II) if subclause (I) does not apply, by using cost or market, whichever is lower.

“LIFO method” applies in that section

The term “LIFO method” means the method authorized by section 472 (relating to last-in, first-out inventories). (ii) Inventory assets

“LIFO recapture amount” applies in that section

the term “LIFO recapture amount” means the amount (if any) by which— (i) the inventory amount of the inventory assets under the first-in, first-out method authorized by section 471, exceeds (ii) the inventory amount of such assets under the LIFO method. (C) Definitions For purposes of this paragraph— (i) LIFO method

“stock or securities” applies in that section

the term “stock or securities” includes rights to acquire stock or securities. [(e) Repealed. Pub. L. 98–369, div. A, title I, § 61(a)(2)(B) , July 18, 1984 , 98 Stat. 581 ] (f) Effect on earnings and profits of gain or loss and of receipt of tax-free distributions (1) Effect on earnings and profits of gain or loss The gain or loss realized from the sale or other disposition (after February 28, 1913 ) of property by a corporation— (A) for the purpose of the computation of the earnings and profits of the corporation, shall (except as provided in subparagraph (B)) be determined by using as the adjusted basis the adjusted basis (under the law applicable to the year in which the sale or other …

“distribution of property” applies in that section

the term “distribution of property” includes a distribution in complete liquidation occurring within 24 months after the adoption of a plan of liquidation, but— (i) only to the extent of the amounts distributed to distributees other than corporate shareholders, and (ii) only to the extent that the corporation designates such amounts as a dividend distribution and duly notifies such distributees of such designation, under regulations prescribed by the Secretary, but (iii) not in excess of the sum of such distributees’ allocable share of the undistributed personal holding company income for such year, computed without regard to this subparagraph or section 562(b).

“dividend” applies in that section

the term “dividend” means any distribution of property made by a corporation to its shareholders— (1) out of its earnings and profits accumulated after February 28, 1913 , or (2) out of its earnings and profits of the taxable year (computed as of the close of the taxable year without diminution by reason of any distributions made during the taxable year), without regard to the amount of the earnings and profits at the time the distribution was made. Except as otherwise provided in this subtitle, every distribution is made out of earnings and profits to the extent thereof, and from the most recently accumulated earnings and profits.

“property” applies throughout its part

the term “property” means money, securities, and any other property; except that such term does not include stock in the corporation making the distribution (or rights to acquire such stock). (b) Redemption of stock For purposes of this part, stock shall be treated as redeemed by a corporation if the corporation acquires its stock from a shareholder in exchange for property, whether or not the stock so acquired is cancelled, retired, or held as treasury stock.

“affiliated group” applies in that section

the term “affiliated group” has the meaning given such term by section 1504(a) (without regard to paragraph (2) of section 1504(b)). (3) Coordination with subpart F If the distributee of a distribution described in paragraph (1) is a controlled foreign corporation (as defined in section 957), then notwithstanding paragraph (1) or subsection (a), such distribution shall be treated as a distribution to which section 331 applies.

“applicable holding company” applies in that section

The term “applicable holding company” means any domestic corporation— (i) which is a common parent of an affiliated group, (ii) stock of which is directly owned by the distributee foreign corporation, (iii) substantially all of the assets of which consist of stock in other members of such affiliated group, and (iv) which has not been in existence at all times during the 5 years immediately preceding the date of the liquidation. (B) Affiliated group For purposes of this subsection,

“corporate distributee” applies in that section

the term “corporate distributee” means only the corporation which meets the stock ownership requirements specified in section 332(b).

“disqualified property” applies in that section

the term “disqualified property” means any property which is acquired by the liquidating corporation in a transaction to which section 351 applied, or as a contribution to capital, during the 5-year period ending on the date of the distribution. Such term includes any property if the adjusted basis of such property is determined (in whole or in part) by reference to the adjusted basis of property described in the preceding sentence.

“80-percent distributee” applies in that section

the term “80-percent distributee” means only the corporation which meets the 80-percent stock ownership requirements specified in section 332(b). For purposes of this section, the determination of whether any corporation is an 80-percent distributee shall be made without regard to any consolidated return regulation.

“12-month acquisition period” applies in that section

The term “12-month acquisition period” means the 12-month period beginning with the date of the first acquisition by purchase of stock included in a qualified stock purchase (or, if any of such stock was acquired in an acquisition which is a purchase by reason of subparagraph (C) of paragraph (3), the date on which the acquiring corporation is first considered under section 318(a) (other than paragraph (4) thereof) as owning stock owned by the corporation from which such acquisition was made). (2) Acquisition date

“acquisition date” applies in that section

The term “acquisition date” means, with respect to any corporation, the first day on which there is a qualified stock purchase with respect to the stock of such corporation. (3) Purchase (A) In general

“affiliated group” applies in that section

The term “affiliated group” has the meaning given to such term by section 1504(a) (determined without regard to the exceptions contained in section 1504(b)). (6) Target affiliate (A) In general A corporation shall be treated as a target affiliate of the target corporation if each of such corporations was, at any time during so much of the consistency period as ends on the acquisition date of the target corporation, a member of an affiliated group which had the same common parent. (B) Certain foreign corporations, etc.

“consistency period” applies in that section

the term “consistency period” means the period consisting of— (i) the 1-year period before the beginning of the 12-month acquisition period for the target corporation, (ii) such acquisition period (up to and including the acquisition date), and (iii) the 1-year period beginning on the day after the acquisition date. (B) Extension where there is plan The period referred to in subparagraph (A) shall also include any period during which the Secretary determines that there was in effect a plan to make a qualified stock purchase plus 1 or more other qualified stock purchases (or asset acquisitions described in subsection (e)) with respect to the target corporation or any target affiliate.

“nonrecently purchased stock” applies in that section

The term “nonrecently purchased stock” means any stock in the target corporation which is held by the purchasing corporation on the acquisition date and which is not recently purchased stock. [(c) Repealed. Pub. L. 99–514, title VI, § 631(b)(2) , Oct. 22, 1986 , 100 Stat. 2272 ] (d) Purchasing corporation; target corporation; qualified stock purchase For purposes of this section— (1) Purchasing corporation

“purchase” applies in that section

The term “purchase” means any acquisition of stock, but only if— (i) the basis of the stock in the hands of the purchasing corporation is not determined (I) in whole or in part by reference to the adjusted basis of such stock in the hands of the person from whom acquired, or (II) under section 1014(a) (relating to property acquired from a decedent), (ii) the stock is not acquired in an exchange to which section 351, 354, 355, or 356 applies and is not acquired in any other transaction described in regulations in which the transferor does not recognize the entire amount of the gain or loss realized on the transaction, and (iii) the stock is not acquired from a person the ownership of whose …

“purchasing corporation” applies in that section

The term “purchasing corporation” means any corporation which makes a qualified stock purchase of stock of another corporation. (2) Target corporation

“qualified stock purchase” applies in that section

The term “qualified stock purchase” means any transaction or series of transactions in which stock (meeting the requirements of section 1504(a)(2)) of 1 corporation is acquired by another corporation by purchase during the 12-month acquisition period. (e) Deemed election where purchasing corporation acquires asset of target corporation (1) In general A purchasing corporation shall be treated as having made an election under this section with respect to any target corporation if, at any time during the consistency period, it acquires any asset of the target corporation (or a target affiliate).

“recently purchased stock” applies in that section

The term “recently purchased stock” means any stock in the target corporation which is held by the purchasing corporation on the acquisition date and which was purchased by such corporation during the 12-month acquisition period. (B) Nonrecently purchased stock

“selling consolidated group” applies in that section

the term “selling consolidated group” means any group of corporations which (for the taxable period which includes the transaction)— (i) includes the target corporation, and (ii) files a consolidated return. To the extent provided in regulations, such term also includes any affiliated group of corporations which includes the target corporation (whether or not such group files a consolidated return).

“target corporation” applies in that section

The term “target corporation” means any corporation the stock of which is acquired by another corporation in a qualified stock purchase. (3) Qualified stock purchase

“nonqualified preferred stock” applies in that section

The term “nonqualified preferred stock” means preferred stock if— (i) the holder of such stock has the right to require the issuer or a related person to redeem or purchase the stock, (ii) the issuer or a related person is required to redeem or purchase such stock, (iii) the issuer or a related person has the right to redeem or purchase the stock and, as of the issue date, it is more likely than not that such right will be exercised, or (iv) the dividend rate on such stock varies in whole or in part (directly or indirectly) with reference to interest rates, commodity prices, or other similar indices.

“preferred stock” applies in that section

The term “preferred stock” means stock which is limited and preferred as to dividends and does not participate in corporate growth to any significant extent. Stock shall not be treated as participating in corporate growth to any significant extent unless there is a real and meaningful likelihood of the shareholder actually participating in the earnings and growth of the corporation. If there is not a real and meaningful likelihood that dividends beyond any limitation or preference will actually be paid, the possibility of such payments will be disregarded in determining whether stock is limited and preferred as to dividends.

“family-owned corporation” applies in that section

the term “family-owned corporation” means any corporation which is described in clause (i) of section 447(d)(2)(C) 1 throughout the 8-year period beginning on the date which is 5 years before the date of the recapitalization. For purposes of the preceding sentence, stock shall not be treated as owned by a family member during any period described in section 355(d)(6)(B).

“20-percent controlled entity” applies in that section

the term “20-percent controlled entity” means, with respect to any distributing or controlled corporation, any corporation with respect to which the distributing or controlled corporation owns directly or indirectly stock meeting the requirements of section 1504(a)(2), except that such section shall be applied by substituting “20 percent” for “80 percent” and without regard to stock described in section 1504(a)(4).

“50-percent or greater interest” applies in that section

the term “50-percent or greater interest” means stock possessing at least 50 percent of the total combined voting power of all classes of stock entitled to vote or at least 50 percent of the total value of shares of all classes of stock. (5) Purchase For purposes of this subsection— (A) In general Except as otherwise provided in this paragraph,

“disqualified distribution” applies in that section

the term “disqualified distribution” means any distribution to which this section (or so much of section 356 as relates to this section) applies if, immediately after the distribution— (A) any person holds disqualified stock in the distributing corporation which constitutes a 50-percent or greater interest in such corporation, or (B) any person holds disqualified stock in the controlled corporation (or, if stock of more than 1 controlled corporation is distributed, in any controlled corporation) which constitutes a 50-percent or greater interest in such corporation. (3) Disqualified stock For purposes of this subsection,

“disqualified investment corporation” applies in that section

The term “disqualified investment corporation” means any distributing or controlled corporation if the fair market value of the investment assets of the corporation is— (i) in the case of distributions after the end of the 1-year period beginning on the date of the enactment of this subsection, ⅔ or more of the fair market value of all assets of the corporation, and (ii) in the case of distributions during such 1-year period, ¾ or more of the fair market value of all assets of the corporation. (B) Investment assets (i) In general Except as otherwise provided in this subparagraph,

“disqualified stock” applies in that section

the term “disqualified stock” means— (A) any stock in the distributing corporation acquired by purchase during the 5-year period ending on the date of the distribution, and (B) any stock in any controlled corporation— (i) acquired by purchase during the 5-year period ending on the date of the distribution, or (ii) received in the distribution to the extent attributable to distributions on— (I) stock described in subparagraph (A), or (II) any securities in the distributing corporation acquired by purchase during the 5-year period ending on the date of the distribution. (4) 50-percent or greater interest For purposes of this subsection,

“investment assets” applies in that section

the term “investment assets” means— (I) cash, (II) any stock or securities in a corporation, (III) any interest in a partnership, (IV) any debt instrument or other evidence of indebtedness, (V) any option, forward or futures contract, notional principal contract, or derivative, (VI) foreign currency, or (VII) any similar asset.

“purchase” applies in that section

the term “purchase” means any acquisition but only if— (i) the basis of the property acquired in the hands of the acquirer is not determined (I) in whole or in part by reference to the adjusted basis of such property in the hands of the person from whom acquired, or (II) under section 1014(a), and (ii) the property is not acquired in an exchange to which section 351, 354, 355, or 356 applies. (B) Certain section 351 exchanges treated as purchases

“qualified property” applies in that section

the term “qualified property” means any stock or securities in the controlled corporation. (C) Treatment of liabilities If any property distributed in the distribution referred to in paragraph (1) is subject to a liability or the shareholder assumes a liability of the distributing corporation in connection with the distribution, then, for purposes of subparagraph (A), the fair market value of such property shall be treated as not less than the amount of such liability. (3) Coordination with sections 311 and 336(a) Sections 311 and 336(a) shall not apply to any distribution referred to in paragraph (1).

“separate affiliated group” applies in that section

the term “separate affiliated group” means, with respect to any corporation, the affiliated group which would be determined under section 1504(a) if such corporation were the common parent and section 1504(b) did not apply. (C) Treatment of trade or business conducted by acquired member If a corporation became a member of a separate affiliated group as a result of one or more transactions in which gain or loss was recognized in whole or in part, any trade or business conducted by such corporation (at the time that such corporation became such a member) shall be treated for purposes of paragraph (2) as acquired in a transaction in which gain or loss was recognized in whole or in part.

“transaction” applies in that section

the term “transaction” includes a series of transactions. (5) Regulations The Secretary shall prescribe such regulations as may be necessary to carry out, or prevent the avoidance of, the purposes of this subsection, including regulations— (A) to carry out, or prevent the avoidance of, the purposes of this subsection in cases involving— (i) the use of related persons, intermediaries, pass-thru entities, options, or other arrangements, and (ii) the treatment of assets unrelated to the trade or business of a corporation as investment assets if, prior to the distribution, investment assets were used to acquire such unrelated assets, (B) which in appropriate cases exclude from the application …

“other property” applies in that section

the term “other property” includes securities. (2) Exceptions (A) Securities with respect to which nonrecognition of gain would be permitted The term “other property” does not include securities to the extent that, under section 354 or 355, such securities would be permitted to be received without the recognition of gain.

“liability” applies in that section

the term “liability” shall include any fixed or contingent obligation to make payment, without regard to whether the obligation is otherwise taken into account for purposes of this title.