1.341-7—Certain sales of stock of consenting corporations.
(a) In general.
(1)
Under section 341(f)(1), if a corporation consents (in the manner provided in paragraph (b) of this section) to the application of section 341(f)(2) with respect to dispositions by it of its subsection (f) assets (as defined in paragraph (g) of this section), then section 341(a)(1) does not apply to any sales of stock of such consenting corporation (other than sale to such corporation) made by any of its shareholders within the 6-month period beginning on the date on which such consent is filed.
(i)
The term sale means a sale of exchange of stock at a gain, but only if such gain would be recognized as long-term capital gain were section 341 not a part of the Code. Thus, a sale or exchange of stock is not a “sale” within the meaning of section 341(f)(1) and (5) if there is no gain on the transaction, or if the sale or exchange gives rise to ordinary income under a provision of the Code other than section 341, or if gain on the transaction is not recognized under any provisions of subtitle A of the Code.
(ii)
A sale of stock in a corporation does not include any disposition of such stock by a shareholder, if, by reason of section 341(d)(1), section 341(a) could not have applied to that disposition. (Under section 341(d)(1), section 341(a) does not apply except to more-than-5-percent shareholders.) Except as otherwise provided in paragraph (a)(2)(i) of this section, the term “sale” included a disposition of stock in a corporation by a more-than-5-percent shareholders described in section 341(d)(1), even though section 341(a) did not apply to the disposition because the corporation was not collapsible or by reason of the application of section 341(d)(2), (3), or (e).
(3)
A corporation which consents to the application of section 341(f)(2) does not thereby become noncollapsible, and the fact that a corporation consents to the application of section 341(f)(2) does not affect the determination as to whether it is a collapsible corporation.
(4)
For limitation on the application of section 341(f)(1) see section 341(f)(5) and (6) and paragraphs (h) and (j) of this section.
(b) Statement of consent.
(1)
The consent of a corporation referred to in paragraph (a)(1) or (j)(1) of this section shall be given by means of a statement, signed by any officer who is duly authorized to act on behalf of the consenting corporation stating that the corporation consents to have the provisions of section 341(f)(2) apply to any disposition by it of its subsection (f) assets. The statement shall be filed with the district director having jurisdiction over the income tax return of the consenting corporation for the taxable year during which the statement is filed.
(2)
(i)
The statement shall contain the name, address, and employer identification number of any corporation 5 percent or more in value of the outstanding stock of which is owned directly by the consenting corporation, and of any other corporation connected to the consenting corporation through a chain of stock ownership described in paragraph (j)(4) of this section. The statement shall also indicate where such 5-percent-or-more corporation (or such “connected” corporation) has consented within the 6-month period ending on the date on which the statement filed to the application of section 341 (f)(2) with respect to any dispositions of its subsection (f) assets (see paragraph (j) of this section), and, if so, the district director with whom such consent was filed and the date on which such consent was filed.
(ii)
If, during the 6-month period beginning on the date on which the statement is filed, the consenting corporation becomes the owner of 5 percent or more in value of the outstanding stock of another corporation or becomes connected to another corporation through a chain of stock ownership described in paragraph (j)(4) of this section, then the consenting corporation shall, within 5 days after such occurrence, notify the district director with whom it filed the statement of the name, address and employer identification number of such corporation.
(3)
A consent under section 341(f)(1) may be filed at any time and there is no limit as to the number of such consents that may be filed. If a consent is filed by a corporation under section 341(f)(1) and if a shareholder sells stock (i) in such corporation, or (ii) in another corporation a sale of whose stock is treated under section 341(f)(6) as a sale of stock in such corporation, at any time during the applicable 6-month period, then the consent cannot thereafter be revoked or withdrawn by the corporation. However, a consent may be revoked or withdrawn at any time prior to a sale during the applicable 6-month period. If no sale is made during such period, the consent will have no effect on the corporation. See paragraph (g) of this section.
(c) Consenting corporation.
(1)
A consenting corporation at the time that is filed a consent under section 341(f)(10) shall notify its shareholders that such consent is being filed. In addition, the consenting corporation shall, at the request of any shareholder, promptly supply the shareholder with a copy of the consent.
(2)
A consenting corporation shall maintain records adequate to permit identification of its subsection (F) assets.
(d) Shareholders of consenting corporation.
(1)
A shareholder who sells stock in a consenting corporation within the 6-month period beginning on the date on which the consent is filed shall—
(i)
Notify the corporation, within 5 days after such sale, of the date on which such sale is made, and
(ii)
Attach a copy of the corporation's consent to the shareholder's income tax return for the taxable year in which the sale is made.
(2)
If the sale of stock in a consenting corporation is treated under section 341(f)(6) as the sale of stock in any other corporation, the consenting corporation shall notify such other corporation, within 5 days after receiving notification of a sale of its stock, of the date on which such sale was made.
(e) Recognition of gain under
(1)
Under section 341(f)(2), if a subsection (f) asset (as defined in paragraph (g) of this section) is disposed of any time by a consenting corporation, then, except as provided in section 341(f)(3) and paragraph (f) of this section, the amount by which—
(ii)
The fair market value of such asset (in the case of any other disposition), exceeds the adjusted base of such asset is treated as gain from the sale of exchange of such asset. Such gain is recognized notwithstanding any contrary non-recognition provisions of subtitle A of the Code, but only to the extent such gain is not recognized under any other provisions of subtitle A of the Code (for example, section 1245 (a)(1) or 1250(a) ). Gain recognized under section 341(f)(2) with respect to a disposition of a subsection (f) asset has the same character (i.e., ordinary income or capital gain) that such gain would have if it arose from a sale of such asset.
(2)
The nonrecognition provisions of subtitle A of the Code which section 341(f)(2) override include, but are not limited to, sections 311(a), 332(c), 336, 337, 351, 361, 371(a), 374(a), 721, 1031, 1033, 1071, and 1081.
(3)
In the case of a foreign corporation which files a statement of consent pursuant to paragraph (b) of this section, such statement, in addition to the information required in paragraph (b) of this section, shall also contain a declaration that the corporation consents that any gain upon the disposition of a subsection (f) asset which would otherwise be recognized under section 341(f)(2) will, for purposes of section 882(a)(2), be considered as gross income which is effectively connected with the conduct of a trade or business which is conducted through a permanent establishment within the United States.
(4)
The provisions of subparagraphs (1) and (2) of this paragraph may be illustrated by the following examples:
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(5)
The provisions of section 341(f)(2) apply whether or not (i) on the date on which a consent is filed or at any time thereafter, the consenting corporation was in fact a collapsible corporation within the meaning of section 341(b), or (ii) on the date of any sale of stock of the consenting corporation, the purchaser of such stock was aware that a consent had been filed under section 341(f)(1) within the 6-month period ending on the date of such sale.
(6)
Section 341(f)(2) does not apply to losses. Thus, section 341(f)(2) does not apply if a loss is realized upon a sale, exahnger or involuntary conversion of a subsection (f) asset nor does the section appy to a disposition other than by way of sale, exchange, or involuntary conversion if at the time of the disposition the fair market value of such property is not greater than its adjusted basis.
(7)
For purposes of this paragraph, the term “disposition” includes an abandonment or retirement, a gift, a sale in a sale-and-leasback transaction, and a transfer upon the foreclosure of a security interest. Such term, however, does not include a mere transfer of title to a creditor upon creation of a security interest or to a debtor upon termination of a security interest. Thus, for example, a disposition occurs upon a sale of property prusuant to a conditional sales contract even though the seller retains legal title to the propoerty for purposes of security, but a disposition does not occur when the seller ultimately gives up his security interest following payment by the purchaser.
(8)
The amount of gain required to be recognized by section 341(f)(2) shall be determined separately for each subsection (f) asset disposed of by the corporation. For purposes of applying section 341(f)(2), the facts and circumstances of each disposition shall be considered in determining whether the transactions involves more than one subsection (f) asset or involves both subsection (f) and nonsubsection (f) assets. In appropriate cases, several subsection (f) assets may be treated as a single asset as long as it is reasonably clear, from the best estimates obtainable on the basis of all the facts and circumstances, that the amount of gain required to be recognized by section 341(f)(2) is not less than the total gain under section 341(f)(2) whish would be computed separately for each subsection (f) asset.
(9)
In the case of a sale, exchange, or involuntary conversion of a subsection (f) asset and a nonsubsection (f) asset in one transaction, the total amount realized upon the disposition shall be allocated between the subsection (f) asset any arm's length agreement between the buyer and the seller will establish the allocation. In the absence of such an agreement, the allocation shall be made by taking into account the appropriate facts and circumstances. Some of the facts and circumstances which shall be taken into account to the extent appropriate included, but are not limited to, a comparision between the subsection (f) asset and all property disposed of in such transaction of (i) the original costs and reproduction costs of construction, erection, or production, (ii) the remaining economic useful life, (ii) state of obsolencence, and (iv) anticipated expenditures to maintain, renovate, or modernize.
(10)
See § 1.1502-13 for the treatment of gain recognized upon a distribution other than in complete liquidation made by one member of a group which files a consolidated return to another such members.
(f) Exception for certain tax-free transactions.
(1)
Under section 341(f)(3), no gain is taken into account under section 341(f)(2) by a transferor corporation on the transfer of a subsection (f) asset to another corporation (other than a corporation exempt from tax imposed by chapter 1 of the Code) if—
(i)
The basis of such asset in the hands of the transferee corporation is determined by reference to its basis in the hands of the transferor by reason of the application of section 332 (relating to distributions in liquidation of an 80-percent-or-more controlled subsidairy corporation), section 351 (relating to transfers to a corporation controlled by the transferor), section 361 (relating to exchanges pursuant to certain reorganizations), section 371(a) (relating to exchanges pursuant to certain receivership and bankruptcy proceedings), or section 374 (a) (relating to exchanges pursuant to certain railroad reorganizations), and
(ii)
The transferee corporation agrees (as provided in subparagraph (3) of this paragraph) to have the provisiions of section 341(f)(2) apply to any disposition by it of such asset.
(2)
The provisions of subparagraph (1) of this paragraph may be illustrated by the following examples:
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(3)
The agreement of a transferee corporation referred to in subparagraph (1) of this paragraph shall be filed, on or before the date on which the subsection (f) assets are transferred, with the district director having jurisdiction over its income tax return for the taxable year during which the transfer is to be made. The agreement shall be signed by any officer who is duly authorized to act on behalf of the transferee corporation (if the transaxtion is one to which section 371(a) or 374(a) applies, the fiduciary for the transferee corporation, in appropriate cases, may sign the agreement) and shall apply to all the subsection (f) assets to be transferred pursuant to the applicable transaction described in section 341(f)(3). The agreement shall identify the transaction by which the subsection (f) assets will be acquired, including the names, addresses, and employer identification numbers of the transferor and transferee corporations, and shall contain a schedule of the subsection (f) assets to be acquired. The agreement shall also state that the transferee corporation (i) agrees to have the provisions of section 341(f)(2) apply to any disposition by it of the subsection (f) assets acquired, and (ii) agrees to maintain records adequate to permit identification of such subsection (f) assets.
(4)
The transferor corporation shall attach a copy of the agreement to its income tax return for the taxable year in which the subsection (f) assets are transferred.
(g) Subsection (f) asset defined.
(1)
Under section 341(f)(4), a subsection (f) asset is any property which, as of the date of any sale of stock to which paragraph (a) or (j)(3) of this section applies, is not a capital asset and is property owned by, or subject to a binding contract or an option to acquire held by, the consenting corporation. Land or any interest in real property (other than a security interest) is treated as property which is not a capital asset. Also, unrealized receivables or fees (as defined in section 341(b)(4)) are treated as property which are not capital assets.
(2)
If, with respect to any property described in subparagraph (1) of this paragraph, manufacture, construction, or production has been commenced by either the consenting corporation or another person before any date of sale of stock described in subparagraph (1) of this paragraph, a consenting corporation's subsection (f) assets include any property resulting from such manufacture, construction, or production. Thus, for example, if, on the date of any sale of stock within the 6-month period, manufacture, construction, or production has been commended on a tract of land to be used for residential housing or on a television series, the term “subsection (f) asset” includes the residential homes of the television tapes resulting from such manufacture, construction, or production by the consenting corporation (or by a transferee corporation which has agreed to the application of section 341(f)(2) ). If land or any interest in real property (other than a security interest) is owned or held under an option by the consenting corporation on the date of any sale of stock described in subparagraph (1) of this paragraph, the term “subsection (f) asset” includes any improvements resulting from construction with respect to such property (by the consenting corporation or by a transferee corporation which has agreed to the application of section 341(f)(2)) if such construction is commenced within 2 years after the date of any such sale. The property or improvements resulting from any manufacture, construction, or production is a question to be determined on the basis of the particular facts and circumstances of each individual case. Thus, for example, a building which is a part of an integrated project is a subsection (f) asset if construction of the project commenced before the date of sale or within 2 years thereafter even if construction of the building commenced more than 2 years thereafter. Similarly a television tape which is part of a series is a subsection (i) asset if production of the series was commenced on the date of sale even if production of the tape commenced after the sale.
(3)
The provisions of subparagraphs (1) and (2) of this paragraph may be illustrated by the following examples:
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(h) Five-year limitation as to shareholder.
Under section 341(f)(5), section 341(f)(1) does not apply to the sale of stock of a consenting corporation if, during the 5-year period ending on the date of such sale, such shareholder (or any person related to such shareholder within the meaning of section 341(e)(8)(A)) made a sale (as defined in paragraph (a)(2) of this section) of any stock of another consenting corporation within any 6-month period beginning on a date on which a consent was filed under section 341(f)(1) by such other corporation. Section 341(f)(5) does not prevent a shareholder of a consenting corporation from receiving the benefit of section 341(f)(1) on the sale of additional shares of the stock of the same consenting corporation.
(j) Special rule for stock ownership in other corporations—
(1)
Section 341(f)(6) provides a special rule applicable to a consenting corporation which owns 5 percent or more in value of the outstanding stock of another corporation. In such a case, a consent filed by the consenting corporation shall not be valid with respect to a sale of its stock during the applicable 6-month period unless each corporation, 5 percent or more in value of the outstanding stock of which is owned by the consenting corporation on the date of such sale, file (within the 6-month period ending on the date of such sale) a valid consent under section 341(f)(1) with respect to sales of its own stock.
(2)
The provisions of subparagraph (1) of this paragraph may be illustrated by the following example:
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(3)
For purposes of applying section 341(f)(4) (relating to the definition of a subsection (f) asset) to a corporation 5 percent or more in value of the outstanding stock of which is owned by the consenting corporation, a sale of stock of the consenting corporation to which section 341(f)(1) applies shall be treated as a sale of stock of such other corporation. Thus, in the example in subparagraph (2) of this paragraph, the subsection (f) assets of corporation Y would include property described in section 341(f)(4) owned by or held under an option by corporation Y on January 1, 1966.
(4)
In the case of a chain of corporations connected by the 5-percent ownership requirement described in subparagraph (1) of this paragraph, rules similar to the rules described in subparagraphs (2) and (3) of this paragraph shall apply. Thus, in the example in subparagraph (2) of this paragraph, if corporation Y owned 5 percent or more of the stock of corporation Z on January 1, 1966, then Z must have filed a valid consent during the 6-month period ending January 1, 1966, in order for the consent filed by X to be valid with respect to the sale of its stock on January 1, 1966. In such case any of stock of either X or Y is treated as a sale of stock of Z for purposes of applying section 341(f)(4) to Z.
(5)
If a corporation is a member of an affiliated group (as defined in section 1504(a)) that files a consolidated return, a corporation will be considered to have filed a consent if a consent is filed on its behalf by the common parent under § 1.1502-77(a).
(k) Effective date.
Paragraphs (b), (c), (e)(3), and (f)(3) of this section apply only with respect to statements and notifications filed more than 30 days after July 6, 1977. Paragraph (d) applies only with respect to sales of stock made more than 30 days after July 6, 1977. All other provisions of this section appy with respect to transactions after August 22, 1964.