Sec. 341. Collapsible corporations [Repealed]
 
 (a) Treatment of gain to shareholders
 Gain from -
 (1) the sale or exchange of stock of a collapsible corporation,
 (2) a distribution -
 (A) in complete liquidation of a collapsible corporation if
 such distribution is treated under this part as in part or full
 payment in exchange for stock, or
 (B) in partial liquidation (within the meaning of section
 302(e)) of a collapsible corporation if such distribution is
 treated under section 302(b)(4) as in part or full payment in
 exchange for the stock, and
 (3) a distribution made by a collapsible corporation which,
 under section 301(c)(3)(A), is treated, to the extent it exceeds
  the basis of the stock, in the same manner as a gain from the
 sale or exchange of property,
 to the extent that it would be considered (but for the provisions
 of this section) as gain from the sale or exchange of a capital
 asset shall, except as otherwise provided in this section, be
 considered as ordinary income.
 (b) Definitions
 (1) Collapsible corporation
 For purposes of this section, the term ''collapsible
 corporation'' means a corporation formed or availed of
 principally for the manufacture, construction, or production of
 property, for the purchase of property which (in the hands of the
 corporation) is property described in paragraph (3), or for the
 holding of stock in a corporation so formed or availed of, with a
 view to -
 (A) the sale or exchange of stock by its shareholders
 (whether in liquidation or otherwise), or a distribution to its
 shareholders, before the realization by the corporation
 manufacturing, constructing, producing, or purchasing the
 property of 2/3 of the taxable income to be derived from such
 property, and
 (B) the realization by such shareholders of gain attributable
 to such property.
 (2) Production or purchase of property
 For purposes of paragraph (1), a corporation shall be deemed to
 have manufactured, constructed, produced, or purchased property,
 if -
 (A) it engaged in the manufacture, construction, or
 production of such property to any extent,
 (B) it holds property having a basis determined, in whole or
 in part, by reference to the cost of such property in the hands
 of a person who manufactured, constructed, produced, or
 purchased the property, or
 (C) it holds property having a basis determined, in whole or
 in part, by reference to the cost of property manufactured,
 constructed, produced, or purchased by the corporation.
 (3) Section 341 assets
 For purposes of this section, the term ''section 341 assets''
 means property held for a period of less than 3 years which is -
 (A) stock in trade of the corporation, or other property of a
 kind which would properly be included in the inventory of the
 corporation if on hand at the close of the taxable year;
 (B) property held by the corporation primarily for sale to
 customers in the ordinary course of its trade or business;
 (C) unrealized receivables or fees, except receivables from
 sales of property other than property described in this
 paragraph; or
 (D) property described in section 1231(b) (without regard to
 any holding period therein provided), except such property
 which is or has been used in connection with the manufacture,
 construction, production, or sale of property described in
 subparagraph (A) or (B).
 In determining whether the 3-year holding period specified in
 this paragraph has been satisfied, section 1223 shall apply, but
 no such period shall be deemed to begin before the completion of
 the manufacture, construction, production, or purchase.
 (4) Unrealized receivables
 For purposes of paragraph (3)(C), the term ''unrealized
 receivables or fees'' means, to the extent not previously
 includible in income under the method of accounting used by the
 corporation, any rights (contractual or otherwise) to payment for
 -
 (A) goods delivered, or to be delivered, to the extent the
 proceeds therefrom would be treated as amounts received from
 the sale or exchange of property other than a capital asset, or
 (B) services rendered or to be rendered.
 (c) Presumption in certain cases
 (1) In general
 For purposes of this section, a corporation shall, unless shown
 to the contrary, be deemed to be a collapsible corporation if (at
 the time of the sale or exchange, or the distribution, described
 in subsection (a)) the fair market value of its section 341
 assets (as defined in subsection (b)(3)) is -
 (A) 50 percent or more of the fair market value of its total
 assets, and
 (B) 120 percent or more of the adjusted basis of such section
 341 assets.
 Absence of the conditions described in subparagraphs (A) and (B)
 shall not give rise to a presumption that the corporation was not
 a collapsible corporation.
 (2) Determination of total assets
 In determining the fair market value of the total assets of a
 corporation for purposes of paragraph (1)(A), there shall not be
 taken into account -
 (A) cash,
 (B) obligations which are capital assets in the hands of the
 corporation, and
 (C) stock in any other corporation.
 (d) Limitations on application of section
 In the case of gain realized by a shareholder with respect to his
 stock in a collapsible corporation, this section shall not apply -
 (1) unless, at any time after the commencement of the
 manufacture, construction, or production of the property, or at
 the time of the purchase of the property described in subsection
 (b)(3) or at any time thereafter, such shareholder (A) owned (or
 was considered as owning) more than 5 percent in value of the
 outstanding stock of the corporation, or (B) owned stock which
 was considered as owned at such time by another shareholder who
 then owned (or was considered as owning) more than 5 percent in
 value of the outstanding stock of the corporation;
 (2) to the gain recognized during a taxable year, unless more
 than 70 percent of such gain is attributable to the property
 described in subsection (b)(1); and
 (3) to gain realized after the expiration of 3 years following
 the completion of such manufacture, construction, production, or
 purchase.
 For purposes of paragraph (1), the ownership of stock shall be
 determined in accordance with the rules prescribed in paragraphs
 (1), (2), (3), (5), and (6) of section 544(a) (relating to personal
 holding companies); except that, in addition to the persons
 prescribed by paragraph (2) of that section, the family of an
 individual shall include the spouses of that individual's brothers
 and sisters (whether by the whole or half blood) and the spouses of
 that individual's lineal descendants. In determining whether
 property is described in subsection (b)(1) for purposes of applying
 paragraph (2), all property described in section 1221(a)(1) shall,
 to the extent provided in regulations prescribed by the Secretary,
 be treated as one item of property.
 (e) Exceptions to application of section
 (1) Sales or exchanges of stock
 For purposes of subsection (a)(1), a corporation shall not be
 considered to be a collapsible corporation with respect to any
 sale or exchange of stock of the corporation by a shareholder,
 if, at the time of such sale or exchange, the sum of -
 (A) the net unrealized appreciation in subsection (e) assets
 of the corporation (as defined in paragraph (5)(A)), plus
 (B) if the shareholder owns more than 5 percent in value of
 the outstanding stock of the corporation the net unrealized
 appreciation in assets of the corporation (other than assets
 described in subparagraph (A)) which would be subsection (e)
 assets under clauses (i) and (iii) of paragraph (5)(A) if the
 shareholder owned more than 20 percent in value of such stock,
 plus
  (C) if the shareholder owns more than 20 percent in value of
 the outstanding stock of the corporation and owns, or at any
 time during the preceding 3-year period owned, more than 20
 percent in value of the outstanding stock of any other
 corporation more than 70 percent in value of the assets of
 which are, or were at any time during which such shareholder
 owned during such 3-year period more than 20 percent in value
 of the outstanding stock, assets similar or related in service
 or use to assets comprising more than 70 percent in value of
 the assets of the corporation, the net unrealized appreciation
 in assets of the corporation (other than assets described in
 subparagraph (A)) which would be subsection (e) assets under
 clauses (i) and (iii) of paragraph (5)(A) if the determination
 whether the property, in the hands of such shareholder, would
 be property gain from the sale or exchange of which would under
 any provision of this chapter be considered in whole or in part
 as ordinary income, were made -
 (i) by treating any sale or exchange by such shareholder of
  stock in such other corporation within the preceding 3-year
 period (but only if at the time of such sale or exchange the
 shareholder owned more than 20 percent in value of the
 outstanding stock in such other corporation) as a sale or
 exchange by such shareholder of his proportionate share of
 the assets of such other corporation, and
 (ii) by treating any liquidating sale or exchange of
 property by such other corporation within such 3-year period
 (but only if at the time of such sale or exchange the
 shareholder owned more than 20 percent in value of the
 outstanding stock in such other corporation) as a sale or
 exchange by such shareholder of his proportionate share of
 the property sold or exchanged,
 does not exceed an amount equal to 15 percent of the net worth of
 the corporation. This paragraph shall not apply to any sale or
 exchange of stock to the issuing corporation or, in the case of a
 shareholder who owns more than 20 percent in value of the
 outstanding stock of the corporation, to any sale or exchange of
 stock by such shareholder to any person related to him (within
 the meaning of paragraph (8)).
 ((2) to (4). Repealed. Pub. L. 99-514, title VI, Sec.
 631(e)(6)(A), Oct. 22, 1986, 100 Stat. 2273)
 (5) Subsection (e) asset defined
 (A) For purposes of paragraph (1), the term ''subsection (e)
 asset'' means, with respect to property held by any corporation
 -
 (i) property (except property used in the trade or
 business, as defined in paragraph (9)) which in the hands of
 the corporation is, or, in the hands of a shareholder who
 owns more than 20 percent in value of the outstanding stock
 of the corporation, would be property gain from the sale or
 exchange of which would under any provision of this chapter
 be considered in whole or in part as ordinary income;
 (ii) property used in the trade or business (as defined in
 paragraph (9)), but only if the unrealized depreciation on
 all such property on which there is unrealized depreciation
  exceeds the unrealized appreciation on all such property on
 which there is unrealized appreciation;
 (iii) if there is net unrealized appreciation on all
 property used in the trade or business (as defined in
 paragraph (9)), property used in the trade or business (as
 defined in paragraph (9)) which, in the hands of a
 shareholder who owns more than 20 percent in value of the
 outstanding stock of the corporation, would be property gain
  from the sale or exchange of which would under any provision
 of this chapter be considered in whole or in part as ordinary
 income; and
 (iv) property (unless included under clause (i), (ii), or
 (iii)) which consists of a copyright, a literary, musical, or
 artistic composition, a letter or memorandum, or similar
 property, or any interest in any such property, if the
 property was created in whole or in part by the personal
  efforts of, or (in the case of a letter, memorandum, or
 similar property) was prepared, or produced in whole or in
 part for, any individual who owns more than 5 percent in
 value of the stock of the corporation.
 The determination as to whether property of the corporation in
 the hands of the corporation is, or in the hands of a
 shareholder would be, property gain from the sale or exchange
 of which would under any provision of this chapter be
 considered in whole or in part as ordinary income; shall be
 made as if all property of the corporation had been sold or
 exchanged to one person in one transaction.
 ((B) Repealed. Pub. L. 99-514, title VI, Sec.
 631(3)(6)(B)(ii), Oct. 22, 1986, 100 Stat. 2273.)
 (6) Net unrealized appreciation defined
 (A) For purposes of this subsection, the term ''net
 unrealized appreciation'' means, with respect to the assets of
 a corporation, the amount by which -
 (i) the unrealized appreciation in such assets on which
 there is unrealized appreciation, exceeds
 (ii) the unrealized depreciation in such assets on which
 there is unrealized depreciation.
  (B) For purposes of subparagraph (A) and paragraph (5)(A),
 the term ''unrealized appreciation'' means, with respect to any
 asset, the amount by which -
 (i) the fair market value of such asset, exceeds
 (ii) the adjusted basis for determining gain from the sale
 or other disposition of such asset.
 (C) For purposes of subparagraph (A) and paragraph (5)(A),
 the term ''unrealized depreciation'' means, with respect to any
 asset, the amount by which -
 (i) the adjusted basis for determining gain from the sale
 or other disposition of such asset, exceeds
 (ii) the fair market value of such asset.
 (D) For purposes of this paragraph (but not paragraph
 (5)(A)), in the case of any asset on the sale or exchange of
 which only a portion of the gain would under any provision of
 this chapter be considered as ordinary income, there shall be
 taken into account only an amount of the unrealized
 appreciation in such asset which is equal to such portion of
 the gain.
 (7) Net worth defined
 For purposes of this subsection, the net worth of a
 corporation, as of any day, is the amount by which -
  (A)(i) the fair market value of all its assets at the close
 of such day, plus
 (ii) the amount of any distribution in complete liquidation
 made by it on or before such day, exceeds
 (B) all its liabilities at the close of such day.
 For purposes of this paragraph, the net worth of a corporation as
 of any day shall not take into account any increase in net worth
 during the one-year period ending on such day to the extent
 attributable to any amount received by it for stock, or as a
 contribution to capital or as paid-in surplus, if it appears that
 there was not a bona fide business purpose for the transaction in
 respect of which such amount was received.
 (8) Related person defined
 For purposes of paragraphs (1) and (4), the following persons
 shall be considered to be related to a shareholder:
 (A) If the shareholder is an individual -
 (i) his spouse, ancestors, and lineal descendants, and
  (ii) a corporation which is controlled by such shareholder.
 (B) If the shareholder is a corporation -
 (i) a corporation which controls, or is controlled by, the
 shareholder, and
 (ii) if more than 50 percent in value of the outstanding
 stock of the shareholder is owned by any person, a
 corporation more than 50 percent in value of the outstanding
 stock of which is owned by the same person.
 For purposes of determining the ownership of stock in applying
 subparagraphs (A) and (B), the rules of section 267(c) shall
 apply, except that the family of an individual shall include only
 his spouse, ancestors, and lineal descendants. For purposes of
 this paragraph, control means the ownership of stock possessing
 at least 50 percent of the total combined voting power of all
 classes of stock entitled to vote or at least 50 percent of the
 total value of shares of all classes of stock of the corporation.
 (9) Property used in the trade or business
 For purposes of this subsection, the term ''property used in
 the trade or business'' means property described in section
 1231(b), without regard to any holding period therein provided.
 (10) Ownership of stock
 For purposes of this subsection (other than paragraph (8)), the
 ownership of stock shall be determined in the manner prescribed
 in subsection (d).
 (11) Corporations and shareholders not meeting requirements
 In determining whether or not any corporation is a collapsible
 corporation within the meaning of subsection (b), the fact that
 such corporation, or such corporation with respect to any of its
 shareholders, does not meet the requirements of paragraph (1),
 (2), (3), or (4) of this subsection shall not be taken into
 account, and such determination, in the case of a corporation
 which does not meet such requirements, shall be made as if this
 subsection had not been enacted.
 (12) Nonapplication of section 1245(a), etc.
 For purposes of this subsection, the determination of whether
 gain from the sale or exchange of property would under any
 provision of this chapter be considered as ordinary income, shall
 be made without regard to the application of sections 617(d)(1),
 1245(a), 1250(a), 1252(a), 1254(a), and 1276(a).
 (f) Certain sales of stock of consenting corporations
 (1) In general
 Subsection (a)(1) shall not apply to a sale of stock of a
 corporation (other than a sale to the issuing corporation) if
 such corporation (hereinafter in this subsection referred to as
 ''consenting corporation'') consents (at such time and in such
 manner as the Secretary may by regulations prescribe) to have the
 provisions of paragraph (2) apply. Such consent shall apply with
 respect to each sale of stock of such corporation made within the
 6-month period beginning with the date on which such consent is
 filed.
 (2) Recognition of gain
 Except as provided in paragraph (3), if a subsection (f) asset
 (as defined in paragraph (4)) is disposed of at any time by a
 consenting corporation (or, if paragraph (3) applies, by a
 transferee corporation), then the amount by which -
 (A) in the case of a sale, exchange, or involuntary
 conversion, the amount realized, or
 (B) in the case of any other disposition, the fair market
 value of such asset,
 exceeds the adjusted basis of such asset shall be treated as gain
 from the sale or exchange of such asset. Such gain shall be
 recognized notwithstanding any other provision of this subtitle,
 but only to the extent such gain is not recognized under any
 other provision of this subtitle.
 (3) Exception for certain tax-free transactions
 If the basis of a subsection (f) asset in the hands of a
 transferee is determined by reference to its basis in the hands
 of the transferor by reason of the application of section 332,
 351, or 361, then the amount of gain taken into account by the
 transferor under paragraph (2) shall not exceed the amount of
 gain recognized to the transferor on the transfer of such asset
 (determined without regard to this subsection). This paragraph
 shall apply only if the transferee -
 (A) is not an organization which is exempt from tax imposed
 by this chapter, and
 (B) agrees (at such time and in such manner as the Secretary
 may by regulations prescribe) to have the provisions of
 paragraph (2) apply to any disposition by it of such subsection
 (f) asset.
 (4) Subsection (f) asset defined
 For purposes of this subsection -
 (A) In general
 The term ''subsection (f) asset'' means any property which,
 as of the date of any sale of stock referred to in paragraph
 (1), is not a capital asset and is property owned by, or
 subject to an option to acquire held by, the consenting
 corporation. For purposes of this subparagraph, land or any
 interest in real property (other than a security interest), and
 unrealized receivables or fees (as defined in subsection
 (b)(4)), shall be treated as property which is not a capital
 asset.
 (B) Property under construction
  If manufacture, construction, or production with respect to
 any property described in subparagraph (A) has commenced before
 any date of sale described therein, the term ''subsection (f)
 asset'' includes the property resulting from such manufacture,
 construction, or production.
 (C) Special rule for land
 In the case of land or any interest in real property (other
 than a security interest) described in subparagraph (A), the
 term ''subsection (f) asset'' includes any improvements
 resulting from construction with respect to such property if
 such construction is commenced (by the consenting corporation
 or by a transferee corporation which has agreed to the
 application of paragraph (2)) within 2 years after the date of
 any sale described in subparagraph (A).
 (5) 5-year limitation as to shareholder
 Paragraph (1) shall not apply to the sale of stock of a
 corporation by a shareholder if, during the 5-year period ending
 on the date of such sale, such shareholder (or any related person
 within the meaning of subsection (e)(8)(A)) sold any stock of
 another consenting corporation within any 6-month period
 beginning on a date on which a consent was filed under paragraph
 (1) by such other corporation.
 (6) Special rule for stock ownership in other corporations
 If a corporation (hereinafter in this paragraph referred to as
 ''owning corporation'') owns 5 percent or more in value of the
 outstanding stock of another corporation on the date of any sale
 of stock of the owning corporation during a 6-month period with
 respect to which a consent under paragraph (1) was filed by the
 owning corporation, such consent shall not be valid with respect
 to such sale unless such other corporation has (within the
 6-month period ending on the date of such sale) filed a valid
 consent under paragraph (1) with respect to sales of its stock.
 For purposes of applying paragraph (4) to such other corporation,
 a sale of stock of the owning corporation to which paragraph (1)
 applies shall be treated as a sale of stock of such other
 corporation. In the case of a chain of corporations connected by
 the 5-percent ownership requirements of this paragraph, rules
 similar to the rules of the two preceding sentences shall be
 applied.
 (7) Adjustments to basis
 The Secretary shall prescribe such regulations as he may deem
 necessary to provide for adjustments to the basis of property to
 reflect gain recognized under paragraph (2).
 (8) Special rule for foreign corporations
 Except to the extent provided in regulations prescribed by the
 Secretary -
 (A) any consent given by a foreign corporation under
 paragraph (1) shall not be effective, and
 (B) paragraph (3) shall not apply if the transferee is a
 foreign corporation.