SEC. 318. CONSTRUCTIVE OWNERSHIP OF STOCK, (a) GENERAL RULE. For purposes of those provisions of this subchapter to which the rules contained in this section are expressly made applicable (1) MEMBERS OF FAMILY. (A) IN GENERAL.-An individual shall be considered as owning the stock owned, directly or indirectly, by or for (i) his spouse (other than a spouse who is legally separated from the individual under a decree of divorce or separate maintenance), and (ii) his children, grandchildren, and parents. (B) EFFECT OF ADOPTION.-For purposes of subparagraph (A) (ii), a legally adopted child of an individual shall be treated as a child of such individual by blood. (2) PARTNERSHIPS, ESTATES, TRUSTS, AND CORPORATIONS. (A) PARTNERSHIPS AND ESTATES.-Stock owned, directly or indirectly, by or for a partnership or estate shall be considered as being owned proportionately by its partners or beneficiaries. Stock owned, directly or indirectly, by or for a partner or a beneficiary of an estate shall be considered as being owned by the partnership or estate. (B) TRUSTS.-Stock owned, directly or indirectly, by or for a trust shall be considered as being owned by its beneficiaries in proportion to the actuarial interest of such beneficiaries in such trust. Stock owned, directly or indirectly, by or for a beneficiary of a trust shall be considered as being owned by the trust, unless such beneficiary's interest in the trust is a remote contingent interest. For purposes of the preceding sentence, a contingent interest of a beneficiary in a trust shall be considered remote if, under the maximum exercise of discretion by the trustee in favor of such beneficiary, the value of such interest, computed actuarially, is 5 percent or less of the value of the trust property. Stock owned, directly or indirectly, by or for any portion of a trust of which a person is considered the owner under subpart E of part I of subchapter J (relating to grantors and others treated as substantial owners) shall be considered as being owned by such person; and such trust shall be treated as owning the stock owned, directly or indirectly, by or for that person. This subparagraph shall not apply with respect to any employees' trust described in section 401 (a) which is exempt from tax under section 501 (a). (C) CORPORATIONS.-If 50 percent or more in value of the stock in a corporation is owned, directly or indirectly, by or for any person, then (i) such person shall be considered as owning the stock owned, directly or indirectly, by or for that corporation, in that proportion which the value of the stock which such person so owns bears to the value of all the stock in such corporation; and (ii) such corporation shall be considered as owning the stock owned, directly or indirectly, by or for that person. (3) OPTIONS.-If any person has an option to acquire stock, such stock shall be considered as owned by such person. For purposes of this paragraph, an option to acquire such an option, and each one of a series of such options, shall be considered as an option to acquire such stock. (4) CONSTRUCTIVE OWNERSHIP AS ACTUAL OWNERSHIP. (A) IN GENERAL.-Except as provided in subparagraph (B), stock constructively owned by a person by reason of the application of paragraph (1), (2), or (3) shall, for purposes of applying paragraph (1), (2), or (3), be treated as actually owned by such person. (B) MEMBERS OF FAMILY.-Stock constructively owned by an individual by reason of the application of paragraph (1) shall not be treated as owned by him for purposes of again applying paragraph (1) in order to make another the constructive owner of such stock. (C) OPTION RULE IN LIEU OF FAMILY Rule.-For purposes of this paragraph, if stock may be considered as owned by an individual under paragraph (1) or (3), it shall be considered as owned by him under paragraph (3). (b) CROSS REFERENCES. For provisions to which the rules contained in subsection (a) apply, see (1) section 302 (relating to redemption of stock); (2) section 304 (relating to redemption by related corporations); (3) section 306 (b) (1) (A) (relating to disposition of section 306 stock); (4) section 334 (b) (3) (C) (relating to basis of property received in certain liquidations of subsidiaries); (5) section 382 (a) (3) (relating to special limitations on net operating loss carryovers); and (6) section 856 (d) (relating to definition of rents from real property in the case of real estate investment trusts). PART II-CORPORATE LIQUIDATIONS Subpart A. Effects on recipients. Subpart B. Effects on corporation. Subpart C. Collapsible corporations; foreign personal holding companies. Subpart D. Definition. Subpart A-Effects on Recipients Sec. 331. Gain or loss to shareholders in corporate liquidations. Sec. 332. Complete liquidations of subsidiaries. Sec. 333. Election as to recognition of gain in certain liquidations. SEC. 331. GAIN OR LOSS TO SHAREHOLDERS IN CORPORATE LIQUI- (a) GENERAL RULE. (1) COMPLETE LIQUIDATIONS.-Amounts distributed in complete liquidation of a corporation shall be treated as in full payment in exchange for the stock. (2) PARTIAL LIQUIDATIONS.-Amounts distributed in partial liquidation of a corporation (as defined in section 346) shall be treated as in part or full payment in exchange for the stock. (b) NONAPPLICATION OF SECTION 301.-Section 301 (relating to effects on shareholder of distributions of property) shall not apply to any distribution of property in partial or complete liquidation. (c) CROSS REFERENCES. (1) For general rule for determination of the amount of gain or loss to the distributee, see section 1001. (2) For general rule for determination of the amount of gain or loss recognized, see section 1002. SEC. 332. COMPLETE LIQUIDATIONS OF SUBSIDIARIES. (a) GENERAL RULE.-No gain or loss shall be recognized on the receipt by a corporation of property distributed in complete liquidation of another corporation. (b) LIQUIDATIONS TO WHICH SECTION APPLIES.-For purposes of subsection (a), a distribution shall be considered to be in complete liquidation only if (1) the corporation receiving such property was, on the date of the adoption of the plan of liquidation, and has continued to be at all times until the receipt of the property, the owner of stock (in such other corporation) possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote and the owner of at least 80 percent of the total number of shares of all other classes of stock (except nonvoting stock which is limited and preferred as to dividends); and either (2) the distribution is by such other corporation in complete cancellation or redemption of all its stock, and the transfer of all the property occurs within the taxable year; in such case the adoption by the shareholders of the resolution under which is authorized the distribution of all the assets of such corporation in complete cancellation or redemption of all its stock shall be considered an adoption of a plan of liquidation, even though no time for the completion of the transfer of the property is specified in such resolution; or (3) such distribution is one of a series of distributions by such other corporation in complete cancellation or redemption of all its stock in accordance with a plan of liquidation under which the transfer of all the property under the liquidation is to be completed within 3 years from the close of the taxable year during which is made the first of the series of distributions under the plan, except that if such transfer is not completed within such period, or if the taxpayer does not continue qualified under paragraph (1) until the completion of such transfer, no distribution under the plan shall be considered a distribution in complete liquidation. If such transfer of all the property does not occur within the taxable year, the Secretary or his delegate may require of the taxpayer such bond, or waiver of the statute of limitations on assessment and collection, or both, as he may deem necessary to insure, if the transfer of the property is not completed within such 3-year period, or if the taxpayer does not continue qualified under paragraph (1) until the completion of such transfer, the assessment and collection of all income taxes then imposed by law for such taxable year or subsequent taxable years, to the extent attributable to property so received. A distribution otherwise constituting a distribution in complete liquidation within the meaning of this subsection shall not be considered as not constituting such a distribution; merely because it does not constitute a distribution or liquidation within the meaning of the corporate law under which the distribution is made; and for purposes of this subsection a transfer of property of such other corporation to the taxpayer shall not be considered as not constituting a distribution (or one of a series of distributions) in complete cancellation or redemption of all the stock of such other corporation, merely because the carrying out of the plan involves (A) the transfer under the plan to the taxpayer by such other corporation of property, not attributable to shares owned by the taxpayer, on an exchange described in section 361, and (B) the complete cancellation or redemption under the plan, as a result of exchanges described in section 354, of the shares not owned by the taxpayer. (c) SPECIAL RULE FOR INDEBTEDNESS OF SUBSIDIARY TO PARENT.If (1) a corporation is liquidated and subsection (a) applies to such liquidation, and (2) on the date of the adoption of the plan of liquidation, such corporation was indebted to the corporation which meets the 80 percent stock ownership requirements specified in subsection (b), then no gain or loss shall be recognized to the corporation so indebted because of the transfer of property in satisfaction of such indebtedness. SEC. 333. ELECTION AS TO RECOGNITION OF GAIN IN CERTAIN LIQUIDATIONS. (a) GENERAL RULE.-In the case of property distributed in complete liquidation of a domestic corporation (other than a collapsible corporation to which section 341 (a) applies), if— (1) the liquidation is made in pursuance of a plan of liquidation. adopted on or after June 22, 1954, and (2) the distribution is in complete cancellation or redemption of all the stock, and the transfer of all the property under the liquidation occurs within some one calendar month. then in the case of each qualified electing shareholder (as defined in subsection (c)) gain on the shares owned by him at the time of the adoption of the plan of liquidation shall be recognized only to the extent provided in subsections (e) and (f). (b) EXCLUDED CORPORATION.-For purposes of this section, the term "excluded corporation" means a corporation which at any time between January 1, 1954, and the date of the adoption of the plan of liquidation, both dates inclusive, was the owner of stock possessing 50 percent or more of the total combined voting power of all classes of stock entitled to vote on the adoption of such plan. (c) QUALIFIED ELECTING SHAREHOLDERS.-For purposes of this section, the term "qualified electing shareholder" means a shareholder (other than an excluded corporation) of any class of stock (whether or not entitled to vote on the adoption of the plan of liquidation) who is a shareholder at the time of the adoption of such plan, and whose written election to have the benefits of subsection (a) has been made and filed in accordance with subsection (d), but (1) in the case of a shareholder other than a corporation, only if written elections have been so filed by shareholders (other than corporations) who at the time of the adoption of the plan of liquidation are owners of stock possessing at least 80 percent of the total combined voting power (exclusive of voting power possessed by stock owned by corporations) of all classes of stock entitled to vote on the adoption of such plan of liquidation; or (2) in the case of a shareholder which is a corporation, only if written elections have been so filed by corporate shareholders (other than an excluded corporation) which at the time of the adoption of such plan of liquidation are owners of stock possessing at least 80 percent of the total combined voting power (exclusive of voting power possessed by stock owned by an excluded corporation and by shareholders who are not corporations) of all classes of stock entitled to vote on the adoption of such plan of liquidation. (d) MAKING AND FILING OF ELECTIONS.-The written elections referred to in subsection (c) must be made and filed in such manner as to be not in contravention of regulations prescribed by the Secretary or his delegate. The filing must be within 30 days after the date of the adoption of the plan of liquidation. (e) NONCORPORATE SHAREHOLDERS.-In the case of a qualified electing shareholder other than a corporation (1) there shall be recognized, and treated as a dividend, so much of the gain as is not in excess of his ratable share of the earnings and profits of the corporation accumulated after February 28, 1913, such earnings and profits to be determined as of the close of the month in which the transfer in liquidation occurred under subsection (a) (2), but without diminution by reason of distributions made during such month; but by including in the computation thereof all amounts accrued up to the date on which the transfer of all the property under the liquidation is completed; and (2) there shall be recognized, and treated as short-term or longterm capital gain, as the case may be, so much of the remainder of the gain as is not in excess of the amount by which the value of that portion of the assets received by him which consists of money, or of stock or securities acquired by the corporation after December 31, 1953, exceeds his ratable share of such earnings and profits. (f) CORPORATE SHAREHOLDERS.-In the case of a qualified electing shareholder which is a corporation, the gain shall be recognized only to the extent of the greater of the two following (1) the portion of the assets received by it which consists of money, or of stock or securities acquired by the liquidating corporation after December 31, 1953; or (2) its ratable share of the earnings and profits of the liquidating corporation accumulated after February 28, 1913, such earnings and profits to be determined as of the close of the month in which the transfer in liquidation occurred under subsection (a) (2), but without diminution by reason of distributions made during such month; but by including in the computation thereof all amounts accrued up to the date on which the transfer of all the property under the liquidation is completed. SEC. 334. BASIS OF PROPERTY RECEIVED IN LIQUIDATIONS. (a) GENERAL RULE. If property is received in a distribution in partial or complete liquidation (other than a distribution to which section 333 applies), and if gain or loss is recognized on receipt of such property, then the basis of the property in the hands of the distributee |