PUBLIC LAW 95-600—NOV. 6, 1978 "(3)
92 STAT. 2791
PREFERRED STOCK MAY BE ISSUED IN CERTAIN CASES.—
Noncallable preferred stock shall be treated as meeting the requirements of paragraph (1) if such stock is convertible at any time into stock which meets the requirements of paragraph (1) and if such conversion is at a conversion price which (as of the date of the acquisition by the ESOP) is reasonable. "(4) CONTROLLED GROUP OF CORPORATIONS DEFINED.—
"(A) IN GENERAL.—For purposes of this subsection, the term 'controlled group of corporations' has the meaning given to such term by section 1563(a) (determined without 26 USC 1563. regard to subsections (a)(4) and (e)(3)(C) of section 1563). "(B) COMMON PARENT MAY OWN ONLY 50 PERCENT OF FIRST
TIER SUBSIDIARY.—For purposes of subparagraph (A), if the common parent owns directly stock possessing at least 50 percent of the voting power of all classes of stock and at least 50 percent of each class of nonvoting stock in a first tier subsidiary, such subsidiary (and all other corporations below it in the chain which would meet the 80 percent test of section 1563(a) if the first tier subsidiary were the common parent) shall be treated as includible corporations, "(m) CONTRIBUTIONS OF STOCK OF CONTROLLING CORPORATION.—If
the stock of a corporation which controls another corporation or which controls a corporation controlled by such other corporation is contributed to an ESOP of the controlled corporation, then no gain or loss shall be recognized, because of that contribution, to the controlled corporation. For purposes of this subsection, the term 'control' has the same meaning as that term has in section 368(c). 26 USC 368. "(n) CROSS REFERENCES.— "(1) For requirements for allowance of ESOP credit, see section 48(n). "(2) For assessable penalties for failure to meet requirements of this section, or for failure to make contributions required with respect to the allowance of an ESOP credit, see section 6699." (b) AMENDMENT OF INVESTMENT CREDIT RULES.—Section 48 (relat-
26 USC 48.
ing to definitions and special rules) is amended by redesignating subsection (n) as subsection (p) and by inserting after subsection (m) the following new subsections: "(n) REQUIREMENTS FOR ALLOWANCE OF ESOP PERCENTAGE.— "(1) IN GENERAL.— "(A) BASIC ESOP PERCENTAGE.—The basic
ESOP percentage shall not apply to any taxpayer for any taxable year unless the taxpayer on his return for such taxable year agrees, as a condition for the allowance of such percentage— "(i) to make transfers of employer securities to an ESOP maintained by the taxpayer having an aggregate value equal to 1 percent of the amount of the qualified investment (as determined under subsections (c) and (d) of section 46) for the taxable year, and 26 USC 46. "(ii) to make such transfers at the times prescribed in subparagraph (C). "(B) MATCHING ESOP PERCENTAGE.—The matching ESOP percentage shall not apply to any taxpayer for any taxable year unless the basic ESOP percentage applies to such taxpayer for such taxable year, and the taxpayer on his return for such taxable year agrees, as a condition for the allowance of the matching ESOP percentage— "(i) to make transfers of employer securities to an ESOP maintained by the taxpayer having an aggregate value equal to the sum of the qualified matching
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