103 STAT. 2330 PUBLIC LAW 101-239—DEC. 19, 1989 (5) AUCTION RATE PREFERRED.— For purposes of section 1503(f)(3)(D) of such Code, auction rate preferred stock shall be treated as issued when the contract requiring the auction became binding. (6) SPECIAL RULE FOR CERTAIN AUCTION RATE PREFERRED. —For {^ purposes of section 1503(fK3XD) of the Internal Revenue Code of 1986, any auction rate preferred stock shall be treated as issued before November 18, 1989, if— (A) a subsidiary was incorporated before July 10, 1989 for the special purpose of issuing such stock, (B) a rating agency was retcdned before July 10, 1989, and (C) such stock is issued before the date 30 days after the date of the enactment of this Act. SEC. 7202. TREATMENT OF CERTAIN HIGH YIELD ORIGINAL ISSUE DIS- COUNT OBLIGATIONS. (a) GENERAL RULE.— Subsection (e) of section 163 (relating to interest deductions on original issue discount obligations) is amended by redesignating paragraph (5) as paragraph (6) and by inserting after paragraph (4) the following new paragraph: "(5) SPECIAL RULES FOR ORIGINAL ISSUE DISCOUNT ON CERTAIN HIGH YIELD OBLIGATIONS.— "(A) IN GENERAL.—In the case of an applicable high yield discount obligation issued by a corporation— "(i) no deduction shall be allowed under this chapter for the disqualified portion of the original issue dis- count on such obligation, and "(ii) the remainder of such original issue discount shall not be allowable as a deduction until paid. For purposes of clause (ii), rules similar to the rules of subsection (i)(3)(B) shall apply in determining the time when the original issue discount is paid. "(B) DiSQUAUFIED PORTION TREATED AS STOCK DISTRIBU- TION FOR PURPOSES OF DIVIDEND RECEIVED DEDUCTION.— " (i) IN GENERAL. —Solely for purposes of sections 243, ' 245, 246, and 246A, the dividend equivalent portion of ^^* any amount includible in gross income of a corporation under section 1272(a) in respect of an applicable high yield discount obligation shall be treated as a dividend received by such corporation from the corporation issu- ing such obligation. (ii) DIVIDEND EQUIVALENT PORTION.— For purposes of clause (i), the dividend equivalent portion of any amount includible in gross income under section 1272(a) in respect of an applicable high yield discount obligation is the portion of the amount so includible— " (I) which is attributeble to the disqualified por- ^ tion of the original issue discount on such obliga- '• tion, and "(II) which would have been treated as a divi- dend if it had been a distribution made by the issuing corporation with respect to stock in such corporation. " (C) DISQUALIFIED PORTION.— "(i) IN GENERAL.—For purposes of this parc^aph, the disqualified portion of the original issue discount on
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