Page:United States Statutes at Large Volume 85.djvu/578

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[85 STAT. 548]
[85 STAT. 548]
PUBLIC LAW 92-000—MMMM. DD, 1971


Ante, p. 544.

PUBLIC LAW 92-178-DEC. 10, 1971

such person shall treat such distribution in the same manner as a distribution from previously taxed income to the extent that (i) the gain referred to in subparagraph (A), exceeds (ii) any other amounts with respect to such share which were treated under this paragraph as made from previously taxed income. I n applying this paragraph with respect to a share of stock in a D I S C or former D I S C, gain on the acquisition of such share by the D I S C or former D I S C or gain on a transaction prior to such acquisition shall not be considered gain referred to in subparagraph (A). "(2) CORPORATE ADJUSTMENT U P O N REDEMPTION.—If section 995(c) applies to a redemption of stock in a D I S C or former D I S C, the accumulated D I S C income shall be reduced by an amount equal to the gain described in section 995(c) with respect to such stock which is (or has been) treated as gain from the sale or exchange of property which is not a capital asset, except to the extent distributions with respect to such stock have been treated under paragraph (1). "(e)

84^s t ^^fsae^^^' 26 u'sc 2032.

[85 STAT.


representing deemed distributions as provided in section 995(b) shall increase the basis of the stock with respect to which the distribution is made. "(2) REDUCTIONS OF BASIS.—The portion of an actual distribution made out of previously taxed income shall reduce the basis of the stock with respect to which it is made, and to the extent that it exceeds the adjusted basis of such stock, shall be treated as gain from the sale or exchange of property. I n the case of stock includible in the gross estate of a decedent for which an election ^^ made under section 2032 (relating to alternate valuation), this paragraph shall not apply to any distribution made after the date of the decedent's death and before the alternate valuation date provided by section 2032. " (f) DEFINITIONS OF DIVISIONS OF EARNINGS AND PROFITS.—For purposes of this part: "(1) D I S C INCOME.—The earnings and profits derived by a corporation during a taxable year in which such corporation is a D I S C, before reduction for any distributions during the year, but reduced by amounts deemed distributed under section 995(b)(1), shall constitute the D I S C income for such year. The earnings and profits of a D I S C for a taxable year include any amounts includible in such D I S C ' S gross income pursuant to section 951(a) for such year. Accumulated D I S C income shall be reduced by deemed distributions under section 995(b)(2). " (2) PREVIOUSLY TAXED INCOME.—Earnings and profits deemed

distributed under section 995(b) for a taxable year shall constitute previously taxed income for such year. "(3) OTHER EARNINGS AND PROFITS.—The earnings and profits for a taxable year which are described in neither paragraph (1) nor (2) shall constitute the other earnings and profits for such year. " (g) EFFECTIVELY CONNECTED INCOME.—In the case of a shareholder who is a nonresident alien individual or a foreign corporation, trust, or estate, gains referred to in section 995(c) and all distributions out of accumulated D I S C income including deemed distributions shall be treated as gains and distributions which are effectively connected with the conduct of a trade or business conducted through a permanent establishment of such shareholder within the United States.