94 STAT. 3406 11 USC 101 et ^^^ Ante, p. 3402.
26 USC 1371.
PUBLIC LAW 96-589—DEC. 24, 1980
"(g) TITLE 11 OR SIMILAR CASES.—If a corporation completely liquidates pursuant to a plan of complete liquidation adopted in a title 11 or similar case (within the meaning of section 368(a)(3)(A))— "(1) for purposes of subsection (a), the term 'property' shall not include any item acquired on or after the date of the adoption of the plan of liquidation if such item is not property within the meaning of subsection (b)(2), and "(2) subsection (a) shall apply to sales and exchanges by the corporation of property within the period beginning on the date of the adoption of the plan and ending on the date of the termination of the case." (d) ESTATE OF INDIVIDUAL IN TITLE 11 CASE PERMITTED TO B E SHAREHOLDER OF SUBCHAPTER S CORPORATION.—Section 1371 (defin-
ing small business corporation) is amended by adding at the end thereof the following new subsection: "(f) ESTATE OF INDIVIDUAL IN TITLE 11 CASE MAY B E SHARE-
"Estate." 26 USC 351.
HOLDER.—For purposes of subsection (a)(2), the term 'estate' includes the estate of an individual in a case under title 11 of the United States Code." (e) AMENDMENTS OF SECTION 351.—
(1) Section 351 (relating to transfer to corporation controlled by transferor) is amended by redesignating subsection (e) as subsection (f) and by striking out subsection (d) and inserting in lieu thereof the following new subsections: "(d) SERVICES, CERTAIN INDEBTEDNESS, AND ACCRUED INTEREST NOT TREATED AS PROPERTY.—For purposes of this section, stock or securi-
ties issued for— "(1)services, "(2) indebtedness of the transferee corporation which is not evidenced by a security, or "(3) interest on indebtedness of the transferee corporation which accrued on or after the beginning of the transferor's holding period for the debt, shall not be considered as issued in return for property. "(e) EXCEPTIONS.—This section shall not apply to— "(1) TRANSFER OF PROPERTY TO AN INVESTMENT COMPANY.—A
transfer of property to an investment company. 11 USC 101
^' ^^9 Ante, p. 3402.
26 USC 312.
"(2) TITLE i i OR SIMILAR CASE.—A transfer of property of a
debtor pursuant to a plan while the debtor is under the jurisdiction of a court in a title 11 or similar case (within the meaning of section 368(a)(3)(A)), to the extent that the stock or securities received in the exchange are used to satisfy the indebtedness of such debtor." (2) Subsection (a) of section 351 is amended by striking out the last sentence. (f) EFFECT ON EARNINGS AND PROFITS.—Section 312 (relating to
effect on earnings and profits) is amended by adding at the end thereof the following new subsection: "(1) DISCHARGE OF INDEBTEDNESS INCOME.— "(1) DOES NOT INCREASE EARNINGS AND PROFITS IF APPLIED TO REDUCE BASIS.—The earnings and profits of a corporation shall
Ante, p. 3394.
not include income from the discharge of indebtedness to the extent of the amount applied to reduce basis under section 1017. "(2) REDUCTION OF DEFICIT IN EARNINGS AND PROFITS IN CERTAIN CASES.—If—
Ante, p. 3402.
"(A) the interest of any shareholder of a corporation is terminated or extinguished in a title 11 or similar case (within the meaning of section 368(a)(3)(A)), and
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