"(1) RECOGNITION OF GAIN IN GENERAL.-Except in the case of distributions described in paragraph (2)— "(A) CORPORATE ASSET BASIS EXCEEDING STOCK BASIS.-If the aggregate adjusted basis (for determining gain) to the corporation of the assets (including money) distributed to the shareholder, increased by the amount of any gain recognized to the corporation upon the distribution, exceeds the sum of "(i) the aggregate adjusted basis to the shareholder for determining gain on the stock, and "(ii) the amount of the liabilities of the corporation assumed by him on the distribution plus the liabilities of the corporation to which such assets are subject, then gain (if any) to the shareholder shall be recognized only to the extent of such excess. "(B) CORPORATE ASSET BASIS NOT EXCEEDING STOCK BASIS.-If the aggregate adjusted basis (for determining gain) to the corporation of the assets (including money) distributed to the shareholder, increased by the amount of any gain recognized to the corporation upon the distribution, does not exceed the sum of— "(i) the aggregate adjusted basis to the shareholder for determining gain on the stock redeemed, and "(ii) the amount of the liabilities of the corporation assumed by him on the distribution plus the liabilities of the corporation to which such assets are subject, then no gain to the shareholder shall be recognized. "(2) RECOGNITION OF GAIN ON CERTAIN DISTRIBUTIONS.-In the case of a nonaliquot distribution (as defined in section 343) made by a collapsible corporation (as defined therein) and in the case of distributions described in section 343 (a) (1) (D) (relating to certain distributions qualifying under section 337), gain (if any) shall be recognized to the shareholder. "(3) RECOGNITION OF LOSS.-Loss (if any) shall be recognized to the shareholder. "(c) 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. "(d) CROSS REFERENCES. “(1) For general rule for determination of the amount of gain or loss to the shareholder, see section 1001. "(2) For general rule for determination of the amount of gain or loss recognized, see section 1002. "(3) For rules relating to certain liquidating distributions on which gain or loss is not recognized to the shareholder, see sections 332, 354, and 355." (b) REPEAL OF SECTION 333.-Section 333 is hereby repealed. SEC. 13. COMPLETE LIQUIDATIONS OF SUBSIDIARIES-AMENDMENTS OF SECTION 332. (a) LIQUIDATIONS TO WHICH SECTION APPLIES.-So much of section 332 (b) as precedes paragraph (2) is amended to read as follows: “(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); for the purpose of this paragraph the disposition by the corporation receiving such property, in anticipation of or after the adoption of the plan of liquidation, of stock in such other corporation possessing less than a majority of the voting power of all classes of its stock shall be treated as an assignment of proceeds of liquidation and not as a disposition of stock unless the disposition was not for the principal purpose of avoiding the application of this paragraph; and either". (b) INDEBTEDNESS OF SUBSIDIARY.-Section 332 (c) is amended to read as follows: "(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. In such event no gain or loss shall be recognized to the corporation meeting such 80 percent stock ownership requirements upon the receipt by it of property in satisfaction of indebtedness (other than interest the payment of which would be includible in gross income as interest)." SEC. 14. BASIS OF PROPERTY RECEIVED IN LIQUIDATIONS AND CERTAIN REDEMPTIONS. (a) AMENDMENT OF SECTION 334.-Section 334 is amended to read as follows: "SEC. 334. BASIS OF PROPERTY RECEIVED IN LIQUIDATIONS AND CERTAIN REDEMPTIONS. "(a) GENERAL RULE.-If property is received in a distribution in partial or complete liquidation (other than a liquidation to which section 332 applies) or in a distribution to which section 302 (a) applies, then “(1) GENERAL RULE.-Except as provided in paragraph (2) or (3), the basis of the property in the hands of the shareholder shall be the fair market value of such property at the time of distribution. "(2) RECOGNITION OF GAIN GOVERNED BY SECTION 331 (b) (1) (A).—In the case of property received in a distribution in which the gain recognized to the shareholder is limited by section 331 (b) (1) (A), the aggregate basis of the property (other than money) in the hands of the shareholder shall be the same as it would be in the hands of the corporation, increased by the amount of any gain recognized to the corporation upon the distribution. "(3) RECOGNITION OF GAIN GOVERNED BY SECTION 331 (b) (1) (B).—In the case of property received in a distribution in which no gain is recognized to the shareholder by reason of the application of section 331 (b) (1) (B), the aggregate basis of the property (other than money) in the hands of the shareholder shall be the same as the aggregate basis to the shareholder of the stock exchanged therefor "(A) increased by the amount of the liabilities of the corporation assumed by him on the distribution plus the liabilities of the corporation to which such property is subject, and "(B) decreased by the amount of money received in the distribution. "(4) ALLOCATION OF BASIS.—Under regulations prescribed by the Secretary or his delegate, the basis determined under paragraph (2) or (3) shall be allocated among the properties (other than money) received in the distribution. "(b) LIQUIDATION OF SUBSIDIARY.— "(1) IN GENERAL.-If property is received by a corporation in a transfer to which section 332 applies and if paragraph (2) does not apply to any part of the property received, then the basis of the property in the hands of such corporation shall be the same as it would be in the hands of the transferor, reduced by the amount of any gain and increased by the amount of any loss not recognized to such corporation under the last sentence of section 332 (c). "(2) EXCEPTION.-If property is received by a corporation in a transfer to which section 332 applies, and if "(A) the transfer is pursuant to a plan of liquidation- "(ii) completed not more than 2 years after the date of the as to dividends), was acquired by the distributee by purchase (as defined in paragraph (3)) during a period of not more than 12 months, then the basis of the property in the hands of the transferee corporation shall be the adjusted basis of the stock and indebtedness (referred to in the last sentence of section 332 (c)) in respect of which the property was received. For purposes of the preceding sentence, under regulations prescribed by the Secretary or his delegate, proper adjustment in the adjusted basis of any stock shall be made for any distribution made to the distributee with respect to such stock before the adoption of the plan of liquidation, for any money received, for any liabilities assumed or subject to which the property was received, and for other items. “(3) PURCHASE defined.—For purposes of paragraph (2) (B), the term 'purchase' means any acquisition of stock, but only if— "(A) the basis of the stock in the hands of the distributee is not determined (i) in whole or in part by reference to the adjusted basis of such stock in the hands of the person from whom acquired, or (ii) under section 1014 (a) (relating to property acquired from a decedent), "(B) the stock is not acquired in an exchange to which section 351 applies, and "(C) the stock is not acquired from a person the ownership of whose stock would, under section 318 (a), be attributed to the person acquiring such stock unless acquired in a distribution in complete liquidation to which paragraph (2) otherwise applies. "(4) DISTRIBUTEE DEFINED.-For purposes of this subsection, the term 'distributee' means only the corporation which meets the 80 percent stock ownership requirements specified in section 332 (b). "(5) SUCCESSIVE LIQUIDATIONS OF CONTROLLED CORPORATIONS.-For purposes of this subsection, stock acquired in a distribution in complete liquidation to which paragraph (2) applies shall be considered to have been purchased on the date the distributee first acquires the ownership or the control (through ownership directly or indirectly of stock of one or more other corporations) of stock in the distributing corporation sufficient to meet the requirements of paragraph (2) (B). "(6) STOCK ACQUIRED PURSUANT TO AN OPTION.-For the purpose of this subsection, if a corporation acquires stock pursuant to an option to buy such stock from a person who, without regard to such option, is not a person the ownership of whose stock would, under section 318 (a), be attributed to such corporation, such stock shall be considered to have been purchased on the date of the acquisition of such option, if such option is exercised on or before the last day of a period of twelve months beginning on the day of the earliest purchase of stock (including the stock subject to such option) used in determining the applicability of paragraph (2) and for this purpose the stock with respect to which the option was exercised shall be deemed to have been purchased on the date such option was acquired." (b) TECHNICAL AMENDMENT.-Clause (ii) of section 453 (d) (4) (A) is amended to read as follows: "(ii) under section 332 (relating to complete liquidations of subsidiaries) no gain or loss with respect to the receipt of such obligation is recognized in the case of the recipient corporation and the basis to the distributee of such installment obligation is determined under section 334 (b) (1),”. SEC. 15. GAIN OR LOSS ON SALES OR EXCHANGES IN CONNECTION WITH CERTAIN LIQUIDATIONS-AMENDMENTS OF SECTION 337. (a) GENERAL RULE.-Section 337 (a) is amended to read as follows: "(a) GENERAL RULE.— “(1) If "(A) a corporation adopts a plan of complete liquidation on or after June 22, 1954, and "(B) within the 12-month period beginning on the date of the adoption of such plan, all of the assets of the corporation are distributed in complete liquidation, less assets retained to meet claims, then no gain or loss shall be recognized to such corporation from the sale or exchange by it of property within such 12-month period. A distribution to shareholders of such corporation within such 12-month period of all beneficial interest in assets of the corporation transferred within such period to a liquidation trust or agency shall be treated as a distribution in liquidation within the meaning of this subsection and section 331, if prior to the expiration of such period the need for such arrangement is established to the satisfaction of the Secretary or his delegate and all terms and conditions imposed by him are complied with. "(2) For purposes of paragraph (1)— "(A) an involuntary conversion of property within the meaning of section 1033 shall be considered a sale or exchange, and "(B) the requirements of paragraph (1) (B) shall be considered satisfied if a disposition of the converted property, as defined in section 1033 (a) (2), occurs within the 12-month period referred to in paragraph (1) and the proceeds of such involuntary conversion are distributed within such 12-month period or within 60 days after the receipt thereof by the corporation, whichever is later." (b) LIMITATION.-Section 337 (c) is amended to read as follows: "(c) LIMITATION.-In the case of a sale or exchange following the adoption of a plan of complete liquidation, if section 332 applies with respect to such liquidation, then "(1) if the basis of the property of the liquidating corporation in the hands of the distributee is determined under section 334 (b) (1), this section shall not apply; or “(2) if the basis of the property of the liquidating corporation in the hands of the distributee is determined under section 334 (b) (2), this section shall apply only to that portion (if any) of the gain which is not greater than the excess of (A) that portion of the adjusted basis (adjusted for any adjustment required under the second sentence of section 334 (b) (2)) of the stock of the liquidating corporation which is allocable, under regulations prescribed by the Secretary or his delegate, to the property sold or exchanged, over (B) the adjusted basis, in the hands of the liquidating corporation, of the property sold or exchanged. This subsection shall not apply to a complete liquidation of a member of an affiliated group of corporations, as defined in section 1504, if all members of the group receiving property in such liquidation and the common parent corporation are completely liquidated within the 12-month period beginning on the date a plan of complete liquidation is first adopted by any of such members of the group." SEC. 16. COLLAPSIBLE CORPORATIONS. (a) REVISION OF PROVISIONS ON COLLAPSIBLE CORPORATIONS.-Section 341 is hereby repealed, and there is inserted immediately after section 342 the following new section: "SEC. 343. COLLAPSIBLE CORPORATIONS. "(a) SALE OR EXCHANGE OF STOCK. "(1) GENERAL RULE.-In the case of a sale or exchange by a shareholder of a collapsible corporation of stock of the corporation— "(A) to a person other than the issuing corporation, or "(B) in a transaction to which section 301 (c) (3) (A) (relating to certain distributions in excess of basis) applies, or "(C) in a transaction constituting "(i) a nonaliquot distribution in complete liquidation of the corporation, or "(ii) a nonaliquot distribution in partial liquidation to which section 346 (a) (1) applies, or "(D) in a transaction constituting a distribution described in section 337 (a) if, by reason of the application of section 337, gain realized by the corporation on the sale or exchange of section 343 assets was not recognized to it, then subject to the limitation in paragraph (2), so much of the shareholder's gain (if any) realized on such sale or exchange as is equal to such stocks' ratable share of the unrealized appreciation on the corporation's section 343 assets immediately prior to such sale or exchange (or in the case of a transaction to which subparagraph (B) applies, immediately after such exchange) shall be treated as gain from the sale of property which is not a capital asset. "(2) STOCK ACQUIRED FROM OTHER PERSONS.-If such stock was acquired by the shareholder (or by another person if the basis of the stock to the shareholder is determined by reference to its basis in the hands of such person) in a transaction to which paragraph (1) (A) was applicable, and if gain or loss to the person from whom such stock was so acquired was recog nized in full, then the amount determined under paragraph (1) with respect to the sale or exchange of such stock by the shareholder shall not be greater than the amount by which "(A) such stock's ratable share of the unrealized appreciation on the corporation's section 343 assets at the time of such sale or exchange, exceeds "(B) such stock's ratable share of the unrealized appreciation on the corporation's section 343 assets at the time of such acquisition. "(3) ADJUSTMENT FOT CERTAIN PRIOR DISTRIBUTIONS.-If the shareholder (or another person if the basis of the stock to the shareholder is determined by reference to its basis in the hands of such person) receives with respect to such stock a distribution to which paragraph (1) (B) is applicable, then any amount determined under paragraphs (1) and (2) with respect to a subsequent sale or exchange of such stock shall be reduced by the amount so determined with respect to such distribution. "(4) EXCEPTION.-Paragraph (1) shall not apply in the case of a shareholder who, at no time during the period of 3 years ending with the date of the sale or exchange of the stock, owned 5 percent or more in value of the outstanding stock of the corporation (exclusive of stock which is limited and preferred as to dividends). For the purposes of this paragraph, section 318 (a) shall apply in determining the ownership of stock. "(5) CERTAIN DISTRIBUTIONS UNDER SECTION 337.-For the purposes of this subsection, in the case of a sale or exchange of stock in a transaction in which there is received in exchange a distribution described in section 337 (a), section 343 assets sold or exchanged by the corporation in transactions in which gain or loss was not recognized by reason of the application of section 337 shall be treated as still being owned by the corporation immediately prior to the distribution. In such case, in determining the unrealized appreciation on such assets, their fair market value and adjusted basis shall be determined as of the time immediately prior to their actual sale or exchange by the corporation. "(b) GAIN TO CORPORATION ON CERTAIN DISTRIBUTIONS.-If a collapsible corporation makes a nonaliquot distribution of section 343 assets in a distribution qualifying under section 346 (a) (2) (relating to certain distributions in partial liquidation) or under section 302 (a) (relating to certain distributions in redemption of stock), then the amount (if any) by which "(1) the fair market value of such assets exceeds "(2) the adjusted basis of such assets for determining gain, immediately prior to the distribution shall be treated as gain to the corporation from the sale of such assets. "(c) CHARACTer of Gain on DISPOSITION OF CERTAIN DISTRIBUTED PROPERTY.— If a collapsible corporation distributes a section 343 asset to a shareholder and if the basis of the property in the hands of the distributee is determined under section 334 (a) (2) or (3), then gain upon the sale or exchange of such property by the distributee (or by a person whose basis for such property is determined in whole or in part by reference to the basis of such property in the hands of such distributee) within 5 years from the date of the distribution shall be considered gain from the sale or exchange of property which is neither a capital asset nor property described in section 1231 (b). "(d) DEFINITION OF SECTION 343 ASSETS.— "(1) GENERAL RULE.-For the purposes of this part, the term 'section 343 asset' means any property of the corporation other than— "(A) money; "(B) property (except property used in the trade or business, as defined in section 1231 (b)), gain from the sale of which would be treated under other provisions of this title as gain from the sale of a capital asset held for more than 6 months (or would be so treated if such property had been held for more than 6 months); and "(C) property used in the trade or business, as defined in section 1231 (b) (or which would constitute such property if it had been held for more than 6 months, or for 12 months or more in the case of livestock) but only if there exists unrealized appreciation on all such property considered in the aggregate. "(2) DISCOUNT BONDS AND EMERGENCY FACILITIES.-If there exists unrealized appreciation on any property described in section 1232 (a) (2) (relating to certain discount bonds) or in section 1238 (relating to emergency facilities), there shall be treated as a section 343 asset (whether or not so treated under paragraph (1)) such portion of the property as the gain which under |