nonaffiliated 10-percent owned corporation
(4) Basis of stock in nonaffiliated 10-percent owned corporations adjusted for earnings and profits changes (A) In general For purposes of allocating and apportioning expenses on the basis of assets, the adjusted basis of any stock in a nonaffiliated 10-percent owned corporation shall be— (i) increased by the amount of the earnings and profits of such corporation attributable to such stock and accumulated during the period the taxpayer held such stock, or (ii) reduced (but not below zero) by any deficit in earnings and profits of such corporation attributable to such stock for such period. (B) Nonaffiliated 10-percent owned corporation For purposes of this paragraph, the term “nonaffiliated 10-percent owned corporation” means any corporation if— (i) such corporation is not included in the taxpayer’s affiliated group, and (ii) members of such affiliated group own 10 percent or more of the total combined voting power of all classes of stock of such corporation entitled to vote. (C) Earnings and profits of lower tier corporations taken into account (i) In general If, by reason of holding stock in a nonaffiliated 10-percent owned corporation, the taxpayer is treated under clause (iii) as owning stock in another corporation with respect to which the stock ownership requirements of clause (ii) are met, the adjustment under subparagraph (A) shall include an adjustment for the amount of the earnings and profits (or deficit therein) of such other corporation which are attributable to the stock the taxpayer is so treated as owning and to the period during which the taxpayer is treated as owning such stock. (ii) Stock ownership requirements The stock ownership requirements of this clause are met with respect to any corporation if members of the taxpayer’s affiliated group own (directly or through the application of clause (iii)) 10 percent or more of the total combined voting power of all classes of stock of such corporation entitled to vote. (iii) Stock owned through entities For purposes of this subparagraph, stock owned (directly or indirectly) by a corporation, partnership, or trust shall be treated as being owned proportionately by its shareholders, partners, or beneficiaries. Stock considered to be owned by a person by reason of the application of the preceding sentence, shall, for purposes of applying such sentence, be treated as actually owned by such person. (D) Coordination with subpart F, etc. For purposes of this paragraph, proper adjustment shall be made to the earnings and profits of any corporation to take into account any earnings and profits included in gross income under section 951 or under any other provision of this title and reflected in the adjusted basis of the stock.