Sec. 384. Limitation on use of preacquisition losses to offset
 built-in gains
 
 (a) General rule
 If -
 (1)(A) a corporation acquires directly (or through 1 or more
 other corporations) control of another corporation, or
  (B) the assets of a corporation are acquired by another
 corporation in a reorganization described in subparagraph (A),
 (C), or (D) of section 368(a)(1), and
 (2) either of such corporations is a gain corporation,
 income for any recognition period taxable year (to the extent
 attributable to recognized built-in gains) shall not be offset by
 any preacquisition loss (other than a preacquisition loss of the
 gain corporation).
 (b) Exception where corporations under common control
 (1) In general
 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.
 (2) Controlled group
 For purposes of this subsection, the term ''controlled group''
 means a controlled group of corporations (as defined in section
 1563(a)); except that -
 (A) ''more than 50 percent'' shall be substituted for ''at
 least 80 percent'' each place it appears,
 (B) the ownership requirements of section 1563(a) must be met
 both with respect to voting power and value, and
 (C) the determination shall be made without regard to
 subsection (a)(4) of section 1563.
 (3) Shorter period where corporations not in existence for 5
 years
 If either of the corporations referred to in paragraph (1) was
 not in existence throughout the 5-year period referred to in
 paragraph (1), the period during which such corporation was in
 existence (or if both, the shorter of such periods) shall be
 substituted for such 5-year period.
 (c) Definitions
 For purposes of this section -
 (1) Recognized built-in gain
 (A) In general
 The term ''recognized built-in gain'' means any gain
 recognized during the recognition period on the disposition of
 any asset except to the extent the gain corporation (or, in any
 case described in subsection (a)(1)(B), the acquiring
 corporation) establishes that -
 (i) such asset was not held by the gain corporation on the
 acquisition date, or
 (ii) such gain exceeds the excess (if any) of -
 (I) the fair market value of such asset on the
 acquisition date, over
 (II) the adjusted basis of such asset on such date.
 (B) Treatment of certain income items
 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.
 (C) Limitation
 The amount of the recognized built-in gains for any
 recognition period taxable year shall not exceed -
 (i) the net unrealized built-in gain, reduced by
 (ii) the recognized built-in gains for prior years ending
 in the recognition period which (but for this section) would
  have been offset by preacquisition losses.
 (2) Acquisition date
 The term ''acquisition date'' means -
 (A) in any case described in subsection (a)(1)(A), the date
 on which the acquisition of control occurs, or
 (B) in any case described in subsection (a)(1)(B), the date
 of the transfer in the reorganization.
 (3) Preacquisition loss
 (A) In general
 The term ''preacquisition loss'' means -
 (i) any net operating loss carryforward to the taxable year
 in which the acquisition date occurs, and
 (ii) any net operating loss for the taxable year in which
 the acquisition date occurs to the extent such loss is
  allocable to the period in such year on or before the
 acquisition date.
 Except as provided in regulations, the net operating loss
 shall, for purposes of clause (ii), be allocated ratably to
 each day in the year.
 (B) Treatment of recognized built-in loss
 In the case of a corporation with a net unrealized built-in
 loss, the term ''preacquisition loss'' includes any recognized
 built-in loss.
 (4) Gain corporation
 The term ''gain corporation'' means any corporation with a net
 unrealized built-in gain.
 (5) Control
 The term ''control'' means ownership of stock in a corporation
 which meets the requirements of section 1504(a)(2).
 (6) Treatment of members of same group
 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.
 (7) Treatment of predecessors and successors
 Any reference in this section to a corporation shall include a
 reference to any predecessor or successor thereof.
 (8) Other definitions
 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.
 (d) Limitation also to apply to excess credits or net capital
 losses
 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.
 (e) Ordering rules for net operating losses, etc.
 (1) Carryover rules
 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).
  (2) Ordering rule for losses carried from same taxable year
 In any case in which -
 (A) a preacquisition loss for any taxable year is subject to
 limitation under subsection (a), and
 (B) a net operating loss from such taxable year is not
 subject to such limitation,
 taxable income shall be treated as having been offset 1st by the
 loss subject to such limitation.
 (f) Regulations
 The Secretary shall prescribe such regulations as may be
 necessary to carry out the purposes of this section, including
 regulations to ensure that the purposes of this section may not be
 circumvented through -
 (1) the use of any provision of law or regulations (including
 subchapter K of this chapter), or
 (2) contributions of property to a corporation.