Sec. 1.963-5 Foreign corporations with variation in foreign tax rate because of distributions. 1.963-6 Deficiency distribution. 1.963-7 Transitional rules for certain taxable years. 1.964 Statutory provisions; miscellaneous provisions. 1.964-1 Determination of the earnings and profits of a foreign corporation. 1.964-2 Treatment of blocked earnings and profits. 1.964-3 Records to be provided by United States shareholders. 1.964-4 Verification of certain classes of income. EXPORT TRADE CORPORATIONS 1.970 Statutory provisions; reduction of subpart F income of export trade corporations. 1.970-2 Elections as to date of determining investments in export trade assets. 1.970-3 Effective date of subpart G. 1.971-1 Definitions with respect to export trade corporations. 1.972 Statutory provisions; consolidation of group of export trade corporations. 1.972-1 Consolidation of group of export trade corporations. GAIN OR LOSS ON DISPOSITION OF PROPERTY DETERMINATION OF AMOUNT OF AND RECOGNITION OF GAIN OR Loss 1.1001 Statutory provisions; determination of amount of and recognition of gain or loss. 1.1001-1 Computation of gain or loss. 1.1002 Statutory provisions; recognition of gain or loss. 1.1002-1 Sales or exchanges. BASIS RULES OF GENERAL APPLICATION 1.1011 Statutory provisions; adjusted basis for determining gain or loss. 1.1011-1 Adjusted basis. 1.1013 Statutory provisions; basis of property included in inventory. 1.1013-1 Property included in inventory. 1.1014 Statutory provisions; basis of property acquired from a decedent. 1.1014-1 Basis of property acquired from a decedent. 1.1014-6 Special rule for adjustments to basis where property is acquired from a decedent prior to his death. 1.1014-7 Example applying rules of §§ 1.1014-4 through 1.1014-6 to case involving multiple interests. 1.1014-8 Bequest, devise, or inheritance of a remainder interest. 1.1015 Statutory provisions; basis of property acquired by gifts and transfers in trust. 1.1015-1 Basis of property acquired by gift after December 31, 1920. 1.1015-2 1.1015-3 Gift or transfer in trust before January 1, 1921. 1.1015-4 Transfer of property in trust after December 31, 1920. Transfers in part a gift and in part a sale. 1.1015-5 Increased basis for gift tax paid. 1.1016 Statutory provisions; adjustments to basis. 1.1016-1 Adjustments to basis; scope of section. 1.1016-2 Items properly chargeable to capital account. 1.1016-3 Exhaustion, wear and tear, obsolescence, amortization, and depletion for periods since February 28, 1913. 1.1016-4 Exhaustion, wear and tear, obsolescence, amortization, and depletion; periods during which income was not subject to tax. 1.1016-5 1.1016-6 Miscellaneous adjustments to basis. Other applicable rules. 1.1016-7 Adjusted basis; cancellation of indebtedness under Bankruptcy Act. Sec. 1.1016-8 Adjusted basis; cancellation of indebtedness; special cases. 1.1016-9 Adjusted basis; mutual savings banks, building and loan associations, and cooperative banks. 1.1016-10 Substituted basis. 1.1017 Statutory provisions; discharge of indebtedness. 1.1017-1 Adjusted basis; discharge of indebtedness; general rule. 1.1017-2 Adjusted basis; discharge of indebtedness; special cases. 1.1018 Statutory provisions; adjustment of capital structure before September 22, 1938. 1.1018-1 Adjusted basis; exception to section 270 of the Bankruptcy Act, as amended. 1.1019 Statutory provisions; property on which lessee has made improvements. 1.1019-1 Property on which lessee has made improvements. 1.1020 Statutory provisions; election in respect of depreciation, etc., allowed before 1952. 1.1020-1 Election as to amounts allowed in respect of depreciation, etc., before 1952. 1.1021 Statutory provisions; sale of annuities. 1.1021-1 Sale of annuities. 1.1022 Statutory provisions; cross references. COMMON NONTAXABLE EXCHANGES 1.1031(a) Statutory provisions; exchange of property held for productive use or investment; nonrecognition of gain or loss from exchanges solely in kind. 1.1031(a)-1 Property held for productive use in trade or business or for investment. 1.1031(b) Statutory provisions; exchange of property held for productive use or investment; gain from exchanges not solely in kind. 1.1031(b)-1 Receipt of other property or money in tax-free exchange. 1.1031(c) Statutory provisions; exchange of property held for productive use or investment; loss from exchanges not solely in kind. 1.1031(c)-1 Nonrecognition of loss. 1.1031(d) Statutory provisions; exchange of property held for productive use or investment; basis. 1.1031(d)-1 Property acquired upon a tax-free exchange. 1.1031(d)-2 Treatment of assumption of liabilities. 1.1032 Statutory provisions; exchange of stock for property. 1.1032-1 Disposition by a corporation of its own capital stock. 1.1033 (a) Statutory provisions; involuntary conversions; general rule. 1.1033(a)-1 Involuntary conversions; nonrecognition of gain. 1.1033(a)-2 Involuntary conversion where disposition of the converted property occurred after December 31, 1950. 1.1033(a)-3 Involuntary conversion where disposition of the converted property occurred before January 1, 1951. 1.1033 (a)-4 Replacement funds where disposition of the converted property occurred before January 1, 1951. 1.1033 (b) Statutory provisions; involuntary conversions; residence of taxpayer. 1.1033 (b)-1 Involuntary conversion of principal residence. 1.1033 (c) Statutory provisions; involuntary conversions; basis of property acquired through involuntary conversion. 1.1033 (c)-1 Basis of property acquired as a result of an involuntary conversion. 1.1033(d) Statutory provisions; involuntary conversions; property sold pursuant to reclamation laws. 1.1033 (d)-1 Disposition of excess property within irrigation project deemed to be involuntary conversion. 1.1033(e) Statutory provisions; involuntary conversions; livestock destroyed by disease. 1.1033 (e)-1 Destruction or disposition of livestock because of disease. 1.1033 (f) Statutory provisions; livestock sold on account of drought. 1.1033 (f)-1 Sale or exchange of livestock solely on account of drought. 1.1033 (g) Statutory provisions; involuntary conversions; condemnation of real property held for productive use in trade or business or for investment. 1.1033 (g)-1 Condemnation of real property held for productive use in trade or business or for investment. 1.1033 (h) Statutory provisions; involuntary conversions; cross references. 1.1033 (h)-1 Effective date. 1.1034 Statutory provisions; sale or exchange of residence. Sec. 1.1034-1 Sale or exchange of residence. 1.1035 Statutory provisions; certain exchanges of insurance policies. 1.1035-1 Certain exchanges of insurance policies. 1.1036 Statutory provisions; stock for stock of same corporation. 1.1036-1 Stock for stock of the same corporation. 1.1051 SPECIAL RULES Statutory provisions; property acquired during affiliation. 1.1051-1 Basis of property acquired during affiliation. 1.1052 Statutory provisions; basis established by the Revenue Act of 1932 or 1934 or by the Internal Revenue Code of 1939. 1.1052-1 Basis of property established by Revenue Act of 1932. 1.1052-2 Basis of property established by Revenue Act of 1934. 1.1052-3 Basis of property established by the Internal Revenue Code of 1939. 1.1053 Statutory provisions; basis of property acquired before March 1, 1913. 1.1053-1 Property acquired before March 1, 1913. 1.1054 Statutory provisions; certain stock of Federal National Mortgage Association. 1.1054-1 Certain stock of Federal National Mortgage Association. 1.1055 Statutory provisions; redeemable ground rents. 1.1055-1 General rule with respect to redeemable ground rents. 1.1055-2 Determination of amount realized on the transfer of the right to hold real property subject to liabilities under a redeemable ground rent. 1.1055-3 Basis of real property held subject to liabilities under a redeemable ground rent. 1.1055-4 Basis of redeemable ground rent reserved or created in connection with transfers of real property before April 11, 1963. 1.1056 Statutory provisions; cross references. CHANGES TO EFFECTUATE F.C.C. POLICY 1.1071 Statutory provisions; gain from sale or exchange to effectuate policies of Federal Communications Commission. 1.1071-1 Gain from sale or exchange to effectuate policies of Federal Communications Commission. 1.1071-2 Nature and effect of election. 1.1071-3 Reduction of basis of property pursuant to election under section 1071. 1.1071-4 Manner of election. 1.1081 EXCHANGES IN OBEDIENCE TO S.E.C. ORDERS Statutory provisions; exchanges and distributions in obedience to orders of the Securities and Exchange Commission; nonrecognition of gain or loss. 1.1081-1 Terms used. 1.1081-2 1.1081-3 Purpose and scope of exception. Exchanges of stock or securities solely for stock or securities. 1.1081-4 Exchanges of property for property by corporations. 1.1081-5 1.1081-6 1.1081-7 group. Distribution solely of stock or securities. Sale of stock or securities received upon exchange by members of system 1.1081-8 Exchanges in which money or other nonexempt property is received. 1.1081-9 Requirements with respect to order of Securities and Exchange Commission. 1.1081-10 Nonapplication of other provisions of the Internal Revenue Code of 1954. 1.1081-11 Records to be kept and information to be filed with returns. 1.1082 Statutory provisions; basis of property acquired in exchanges and distributions made in obedience to orders of the Securities and Exchange Commission. 1.1082-1 Basis for determining gain or loss. 1.1082-2 Basis of property acquired upon exchanges under section 1081 (a) or (e). 1.1082-3 Reduction of basis of property by reason of gain not recognized under section 1081(b). 1.1082-4 Basis of property acquired by corporation under section 1081(a), 1081(b), or 1081(e) as contribution of capital or surplus, or in consideration for its own stock or securities. 1.1082-5 Basis of property acquired by shareholder upon tax-free distribution under section 1081 (c) (1) or (2). Sec. 1.1082-6 Basis of property acquired under section 1081(d) in transactions between corporations of the same system group. 1.1083 Statutory provisions; exchanges and distributions in obedience to orders of the Securities and Exchange Commission; definitions. 1.1083-1 Definitions. WASH SALES OF STOCK OR SECURITIES 1.1091 Statutory provisions; losses from wash sales of stock or securities; basis. 1.1091-1 Losses from wash sales of stock or securities. 1.1091-2 Basis of stock or securities acquired in "wash sales". DISTRIBUTIONS PURSUANT TO BANK HOLDING COMPANY ACT OF 1956 1.1101 Statutory provisions; distributions pursuant to Bank Holding Company Act of 1956. 1.1101-4 Records to be kept and information to be filed with returns. 1.1102 Statutory provisions; distributions pursuant to Bank Holding Company Act of 1956; special rules. 1.1102-1 Basis of property acquired in distributions by qualified bank holding corporations. 1.1102-2 Filing of notification under section 1102(b) by qualified bank holding corporations. 1.1102-3 Allocation of earnings and profits in certain distributions by qualified bank holding corporations. 1.1103 Statutory provisions; distributions pursuant to Bank Holding Company Act of 1956; definitions. AUTHORITY: The provisions of this Part 1, §§ 1.851 to 1.1200, issued under sec. 7805, 68A Stat. 917; 26 U.S.C. 7805, unless otherwise noted. SOURCE: The provisions of this Part 1, §§ 1.851 to 1.1200, contained in Treasury Decision 6500, 25 F.R. 11910, Nov. 26, 1960; 25 F.R. 14021, Dec. 31, 1960, unless otherwise noted. § 1.851 REGULATED INVESTMENT COMPANIES AND REAL ESTATE INVESTMENT TRUSTS Statutory provisions; definition of regulated investment company. SEC. 851. Definition of regulated investment company-(a) General rule. For purposes of this subtitle, the term "regulated investment company" means any domestic corporation (other than a personal holding company as defined in section 542) — (1) Which, at all times during the taxable year, is registered under the Investment Company Act of 1940, as amended (54 Stat. 789; 15 U. S. C. 80 a-1 to 80 b-2), either as a management company or as a unit investment trust, or (2) Which is a common trust fund or similar fund excluded by section 3 (c) (3) of such Act (15 U. S. C. 80 a-3 (c)) from the definition of "investment company" and is not included in the definition of "common trust fund” by section 584 (a). (b) Limitations. A corporation shall not be considered a regulated investment company for any taxable year unless (1) It Alles with its return for the taxable year an election to be regulated investment company or has made such election for a previous taxable year which began after December 31, 1941; (2) At least 90 percent of its gross income is derived from dividends, interest, and gains from the sale or other disposition of stock or securities; (3) Less than 30 percent of its gross income is derived from the sale or other disposition of stock or securities held for less than 3 months; and (4) At the close of each quarter of the taxable year (A) At least 50 percent of the value of its total assets is represented by (1) Cash and cash items (including receivables), Government securities and securities of other regulated investment companies, and (ii) Other securities for purposes of this calculation limited, except and to the extent provided in subsection (e), in respect of any one issuer to an amount not greater in value than 5 percent of the value of the total assets of the taxpayer and to not more than 10 percent of the outstanding voting securities of such issuer, and (B) Not more than 25 percent of the value of its total assets is invested in the securities (other than Government securities or the securities of other regulated investment companies) of any one issuer, or of two or more issuers which the taxpayer controls and which are determined, under regulations prescribed by the Secretary or his delegate, to be engaged in the same or similar trades or businesses or related trades or businesses. (c) Rules applicable to subsection (b) (4). For purposes of subsection (b) (4) and this subsection (1) In ascertaining the value of the taxpayer's investment in the securities of an issuer, for the purposes of subparagraph (B), there shall be included its proper proportion of the investment of any other corporation, a member of a controlled group, in the securities of such issuer, as determined under regulations prescribed by the Secretary or his delegate. (2) The term "controls" means the ownership in a corporation of 20 percent or more of the total combined voting power of all classes of stock entitled to vote. (3) The term "controlled group" means one or more chains of corporations connected through stock ownership with the taxpayer if (A) 20 percent or more of the total combined voting power of all classes of stock entitled to vote of each of the corporations (except the taxpayer) is owned directly by one or more of the other corporations, and (B) The taxpayer owns directly 20 percent or more of the total combined voting power of all classes of stock entitled to vote, of at least one of the other corporations. (4) The term “value” means, with respect to securities (other than those of majorityowned subsidiaries) for which market quotations are readily available, the market value of such securities; and with respect to other securities and assets, fair value as determined in good faith by the board of directors, except that in the case of securities of majorityowned subsidiaries which are investment companies such fair value shall not exceed market value or asset value, whichever is higher. (5) All other terms shall have the same meaning as when used in the Investment Company Act of 1940, as amended. (d) Determination of status. A corporation which meets the requirements of subsections (b) (4) and (c) at the close of any quarter shall not lose its status as a regulated investment company because of a discrepancy during a subsequent quarter between the value of its various investments and such requirements unless such discrepancy exists immediately after the acquisition of any security or other property and is wholly or partly the result of such acquisition. A corporation which does not meet such requirements at the close of any quarter by reason of a discrepancy existing immediately after the acquisition of any security or other property which is wholly or partly the result of such acquisition during such quarter shall not lose its status for such quarter as a regulated investment company if such discrepancy is eliminated within 30 days after the close of such quarter and in such cases it shall be considered to have met such requirements at the close of such quarter for purposes of applying the preceaing sentence. (e) Investment companies furnishing capital to development corporations—(1) General rule. If the Securities and Exchange Commission determines, in accordance with regulations issued by it, and certifies to the Secretary or his delegate not earlier than 60 days prior to the close of the taxable year of a registered management company, that such investment company is principally engaged in the furnishing of capital to other corporations which are principally engaged in the development or exploitation of inventions, technological improvements, new processes, or products not previously generally available, such investment company may, in the computation of 50 percent of the value of its assets under subparagraph (A) of subsection (b) (4) for any quarter of such taxable year, include the value of any securities of an issuer, whether or not the investment company owns more than 10 percent of the outstanding voting securities of such issuer, the basis of which, when added to the basis of the investment company for securities of such issuer previously acquired, did not exceed 5 percent of the value of the total assets of the investment company at the time of the subsequent acquisition of securities. The preceding sentence shall not apply to the securities of an issuer if the investment company has continuously held any security of such issuer (or of any predecessor company of such issuer as determined under regulations prescribed by the Secretary or his delegate) for 10 or more years preceding such quarter of such taxable year. (2) Limitation. The provisions of this subsection shall not apply at the close of any quarter of a taxable year to an investment company if at the close of such quarter more than 25 percent of the value of its total assets is represented by securities of issuers with respect to each of which the investment company holds more than 10 percent of the outstanding voting securities of such issuers and in respect of each of which or any predecessor thereof the investment company has continuously held any security for 10 or more years preceding such quarter unless the value of its total assets so represented is reduced to 25 percent or less within 30 days after the close of such quarter. (3) Determination of status. For purposes of this subsection, unless the Securities and Exchange Commission determines otherwise, a corporation shall be considered to be principally engaged in the development or exploitation of inventions, technological improvements, new processes, or products not previously generally available, for at least 10 years after the date of the first acquisition of any security in such corporation or any predecessor thereof by such investment company if at the date of such acquisition the corporation or its predecessor was principally so engaged, and an investment company shall be considered at any date to be furnishing capital to any company whose secu |