26 U.S. Code § 384 - Limitation on use of preacquisition losses to offset built-in gains
Subsection (a) shall not apply to the preacquisition loss of any corporation if such corporation and the gain corporation were members of the same controlled group at all times during the 5-year period ending on the acquisition date.
Any item of income which is properly taken into account for any recognition period taxable year but which is attributable to periods before the acquisition date shall be treated as a recognized built-in gain for the taxable year in which it is properly taken into account and shall be taken into account in determining the amount of the net unrealized built-in gain.
The term “gain corporation” means any corporation with a net unrealized built-in gain.
The term “control” means ownership of stock in a corporation which meets the requirements of section 1504(a)(2).
Except as provided in regulations and except for purposes of subsection (b), all corporations which are members of the same affiliated group immediately before the acquisition date shall be treated as 1 corporation. To the extent provided in regulations, section 1504 shall be applied without regard to subsection (b) thereof for purposes of the preceding sentence.
Any reference in this section to a corporation shall include a reference to any predecessor or successor thereof.
Except as provided in regulations, the terms “net unrealized built-in gain”, “net unrealized built-in loss”, “recognized built-in loss”, “recognition period”, and “recognition period taxable year”, have the same respective meanings as when used in section 382(h), except that the acquisition date shall be taken into account in lieu of the change date.
Rules similar to the rules of subsection (a) shall also apply in the case of any excess credit (as defined in section 383(a)(2)) or net capital loss.
If any preacquisition loss may not offset a recognized built-in gain by reason of this section, such gain shall not be taken into account in determining under section 172(b)(2) the amount of such loss which may be carried to other taxable years. A similar rule shall apply in the case of any excess credit or net capital loss limited by reason of subsection (d).
1989—Subsec. (e)(1). Pub. L. 101–239 substituted “built-in gain” for “build-in gain”.
1988—Subsec. (a). Pub. L. 100–647, § 2004(m)(1)(A), amended subsec. (a) generally, making changes in substance and structure.
Subsec. (b). Pub. L. 100–647, § 2004(m)(3), substituted “corporations under common control” for “50 percent of gain corporation held” in heading and amended text generally. Prior to amendment, text read as follows: “Subsection (a) shall not apply if more than 50 percent of the stock (by vote and value) of the gain corporation was held throughout the 5-year period ending on the acquisition date—
“(1) in any case described in subsection (a)(1), by members of the affiliated group referred to in subsection (a)(1), or
Subsec. (c)(1)(A). Pub. L. 100–647, § 2004(m)(1)(D), substituted “subsection (a)(1)(B)” for “subsection (a)(2)”.
Subsec. (c)(2). Pub. L. 100–647, § 2004(m)(1)(C), amended par. (2) generally. Prior to amendment, par. (2) read as follows: “The term ‘acquisition date’ means the date on which the gain corporation becomes a member of the affiliated group or, in any case described in subsection (a)(2), the date of the distribution or transfer in the liquidation or reorganization.”
Subsec. (c)(4) to (8). Pub. L. 100–647, § 2004(m)(1)(B), redesignated par. (4) as (8) and added pars. (4) to (7).
Subsecs. (e), (f). Pub. L. 100–647, § 2004(m)(2), (4), substituted “a corporation” for “the gain corporation” in subsec. (e)(2), redesignated subsec. (e) as (f), and added subsec. (e).
Amendment by Pub. L. 101–239 effective, except as otherwise provided, as if included in the provision of the Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100–647, to which such amendment relates, see section 7817 of Pub. L. 101–239, set out as a note under section 1 of this title.
Amendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provisions of the Revenue Act of 1987, Pub. L. 100–203, title X, to which such amendment relates, see section 2004(u) of Pub. L. 100–647, set out as a note under section 56 of this title.
Written determinations for this section
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- Closing of Partnership Taxable Year : 2018-02-09
- Recognized Built-in Gain : 2004-11-19
- Stock Acquisitions : 2004-11-19
- Preacquisition Loss : 2004-11-19
- Ordering Rules : 2004-11-19
- Transfer to Corporation Controlled by Transferor : 2001-06-22
- Allocation of Income and Deductions Among Taxpayers : 2001-06-22
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