§ 384. Limitation on use of preacquisition losses to offset built-in gains
(a)
General rule
If—
(1)
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—
(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—
(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.
(2)
Acquisition date
The term “acquisition date” means—
(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.
(4)
Gain corporation
The term “gain corporation” means any corporation with a net unrealized built-in gain.
(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.
(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).
(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—