78 STAT. ]
PUBLIC LAW 88-272-FEB. 26, 1964
125
the group of which such corporation is a component member shall be made under regulations prescribed by the Secretary' or his delegate which are consistent with the purposes of this part. " (C) I f stock is owned by a person within the meaning of subsection (d) and such ownership results in the corporation being a component member of a controlled group, such stock shall not be treated as excluded stock under subsection (c)(2), if by reason of treating such stock as excluded stock the result is that such corporation is not a component member of a controlled group of corporations. "(4)
F R A N C H I S E D CORPORATION.
If—
" (A) a parent corporation (as defined in subsection (c) (2)(A)), or a conunon owner (as defined in subsection (c) (2)(B)), o f a corporation which is a member of a controlled group of corporations is under a duty (arising out of a written agreement) to sell stock of such corporation (referred to in this paragraph as 'franchised corporation') which is franchised to sell the products of another member, or the common owner, of such control! ed group; " (B) such stock is to be sokl to an employee (or employees) of such franchised corporation pursuant to a bona tide plan designed to eliminate the stock ownership of the parent corporation or of the conmion owner in the franchised corporation; " (C) such plan— " (i) provides a reasonable selling price for such stock, and "(ii) requires that a portion of the employee's share of the profits of such corporation (whether received as compensation or as a dividend) be applied to the purchase of such stock (or the purchase of notes, bonds, debentures or other similar evidence of indebtedness of such franchised corporation held by such parent corporation or common owner); " (D) such employee (or employees) owns directly more than 20 percent of the total value of shares of all classes of stock in such franchised corporation; " (E) more than 50 percent of the inventory of such franchised corporation is acquired from members of the controlled group, the connnon owner, or both; and " (F) all of the conditions contained in subparagraphs fA), (B), (C), (D), and (E) have been met for one-half ^or more) of the number of days preceding the December 31 included within the taxable year (or if the taxable year does not include December 31, the last day of such year) of the franchised corporation, then such franchised corporation shall be treated as an excluded member of such group, under subsection (b)(2), for such taxable year." (b) DiSALLOWAXCK OF SvRTAX EXEMI'TIOX AND ACCUMULATED EARXTXCJS CREDIT.—Section 1551 (relating to disallowance of surtax
exemption and accunnilated earnings credit) is amended to read as follows: "SEC. 1551. DISALLOWANCE OF SURTAX EXEMPTION AND ACCUMULATED EARNINGS CREDIT. " (a) IN GENERAL.—If—
"(1) any corporation transfers, on or after January 1, 1951, and on or before June 12, 19()3, all or ]>art of its property (other than money) to a transferee corporation,
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