103 STAT. 2336 PUBLIC LAW 101-239—DEC. 19, 1989 proportionate share (determined on the basis of respective fair market values) of the fair market value of the assets of such corporation (determined under section 382(h)) imme- diately before the ownership change." 26 USC 56 note. (c) EFFECTIVE DATE. — (1) IN GENERAL. —Except as otherwise provided in this subsec- tion, the amendments made by this section shall apply to ownership changes and acquisitions after October 2, 1989, in taxable years ending after such date. (2) BINDING CONTRACT.—The amendments made by this sec- tion shall not apply to any ownership change or' acquisition ' ^ pursuant to a written binding contract in effect on October 2, ^ 1989, and at all times thereafter before such change or acquisi- tion. (3) BANKRUPTCY PROCEEDINGS.— In the case of a reorganization described in section 368(a)(l)(G) of the Internal Revenue Code of 1986, or an exchange of debt for stock in a title 11 or similar case (as defined in section 368(a)(3) of such Code), the amend- ments made by this section shall not apply to any ownership a change resulting from such a reorganization or proceeding if a petition in such case WEUS filed with the court before October 3, 1989. (4) SUBSIDIARIES OF BANKRUPT PARENT. —The amendments made by this section shall not apply to any built-in loss of a . corporation which is a member (on October 2, 1989) of an affiliated group the common parent of which (on such date) was subject to title 11 or similar case (as defined in section 368(a)(3) of such Code). The preceding sentence shall apply only if the . ownership change or acquisition is pursuant to the plan ap- proved in such proceeding and is before the date 2 years after the date on which the petition which commenced such proceed- ing was filed. SEC. 7206. DISTRIBUTIONS ON CERTAIN PREFERRED STOCK TREATED AS EXTRAORDINARY DIVIDENDS. (a) GENERAL RULE.—Section 1059 (relating to corporate sharehold- er's basis in stock reduced by nontaxed portion of extraordinary dividends) is amended by striking subsection (f) and inserting the following: "(f) TREATMENT OF DIVIDENDS ON CERTAIN PREFERRED STOCK.— "(1) IN GENERAL. — Any dividend with respect to dis(][ualified preferred stock shall be treated as an extraordinary dividend to which paragraphs (1) and (2) of subsection (a) apply without
- regard to the period the taxpayer held the stock.
(2) DiSQUAUFiED PREFERRED STOCK.— For purposes of this subsection, the term 'disqualified preferred stock' mecuis any stock which is preferred as to dividends if— "(A) when issued, such stock has a dividend rate which declines (or can reasonably be expected to decline) in the future, "(B) the issue price of such stock exceeds its liquidation rights or its stated redemption price, or "(C) such stock is otherwise structured— "(i) to avoid the other provisions of this section, and "(ii) to enable corporate shareholders to reduce tax through a combination of dividend received deductions and loss on the disposition of the stock.
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