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USC Title 26 enacted through 2008

§ 384. Limitation on use of preacquisition losses to offset built-in gains

General rule
If -
a corporation acquires directly (or through 1 or more other corporations) control of another corporation, or
the assets of a corporation are acquired by another corporation in a reorganization described in subparagraph (A), (C), or (D) of section 368(a)(1), and
either of such corporations is a gain corporation,
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).
Exception where corporations under common control
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.
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 -
"more than 50 percent" shall be substituted for "at least 80 percent" each place it appears,
the ownership requirements of section 1563(a) must be met both with respect to voting power and value, and
the determination shall be made without regard to subsection (a)(4) of section 1563.
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.
For purposes of this section -
Recognized built-in gain
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 -
such asset was not held by the gain corporation on the acquisition date, or
such gain exceeds the excess (if any) of -
the fair market value of such asset on the acquisition date, over
the adjusted basis of such asset on such date.
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.
The amount of the recognized built-in gains for any recognition period taxable year shall not exceed -
the net unrealized built-in gain, reduced by
the recognized built-in gains for prior years ending in the recognition period which (but for this section) would have been offset by preacquisition losses.
Acquisition date
The term "acquisition date" means -
in any case described in subsection (a)(1)(A), the date on which the acquisition of control occurs, or
in any case described in subsection (a)(1)(B), the date of the transfer in the reorganization.
Preacquisition loss
In general
The term "preacquisition loss" means -
any net operating loss carryforward to the taxable year in which the acquisition date occurs, and
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.
Treatment of recognized built-in loss
In the case of a corporation with a net unrealized built-in loss, the term "preacquisition loss" includes any recognized built-in loss.
Gain corporation
The term "gain corporation" means any corporation with a net unrealized built-in gain.
The term "control" means ownership of stock in a corporation which meets the requirements of section 1504(a)(2).
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.
Treatment of predecessors and successors
Any reference in this section to a corporation shall include a reference to any predecessor or successor thereof.
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.
Limitation also to apply to excess credits or net capital losses
Rules similar to the rules of subsection (a) shall also apply in the case of any excess credit (as defined in section 383(a)(2)) or net capital loss.
Ordering rules for net operating losses, etc.
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).
Ordering rule for losses carried from same taxable year
In any case in which -
a preacquisition loss for any taxable year is subject to limitation under subsection (a), and
a net operating loss from such taxable year is not subject to such limitation,
taxable income shall be treated as having been offset 1st by the loss subject to such limitation.
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 -
the use of any provision of law or regulations (including subchapter K of this chapter), or
contributions of property to a corporation.

Tax Code (Internal Revenue Code) Section Index

U.S. GAAP by Codification Topic
105 GAAP Hierarchy
105 GAAP History

205 Presentation of Financial Statements
205-20 Discontinued Operations
210 Balance Sheet
210-20 Offsetting
220 Comprehensive Income
225 Income Statement
225-20 Extraordinary and Unusual Items
230 Statement of Cash Flows
250 Accounting Changes and Error Corrections
260 Earnings per Share
270 Interim Reporting

310 Impairment of a Loan
320 Investment Securities
320 Other-Than-Temporary Impairments, FSP FAS 115-2
320-10-05 Overview of Investments in Other Entities
320-10-35 Reclassification of Investments in Securities
323-10 Equity Method Investments
323-30 Investments in Partnerships and Joint Ventures
325-20 Cost Method Investments
330 Inventory

340-20 Capitalized Advertising Costs
350-20 Goodwill
350-30 Intangibles Other than Goodwill
350-40 Internal-Use Software
350-50 Website Development Costs
360 Property, Plant and Equipment
360-20 Real Estate Sales

410 Asset Retirement and Environmental Obligations
420 Exit or Disposal Cost Obligations
450 Contingencies
450-20 Loss Contingencies
450-30 Gain Contingencies
480 Redeemable Financial Instruments

505-20 Stock Dividends, Stock Splits
505-30 Treasury Stock

605 SEC Staff Accounting Bulletin, Topic 13
605-25 Revenue Recognition - Multiple Element Arrangements

715-30 Defined Benefit Plans - Pension
718 Share-Based Payment
730 Research and Development
730-20 Research and Development Arrangements

805 Business Combinations
810 Consolidation
810 Noncontrolling Interests
810 Consolidation of Variable Interest Entities, SFAS 167

815 Derivatives and Hedging Overview

820 Fair Value Measurements
820 Fair value when the markets are not active, FSP FAS 157-4
825 Fair Value Option

830 Foreign Currency Matters
830-20 Foreign Currency Transactions
830-30 Translation of Financial Statements
835 Interest
835-20 Capitalization of Interest
835-30 Imputation of Interest

840 Leases
840-20 Operating Leases
840-30 Capital Leases
840-40 Sale-Leaseback Transactions
845 Nonmonetary Transactions

855 Subsequent Events
860-20 Sale of Financial Assets, SFAS 166
860-50 Servicing Assets and Liabilities, SFAS 156

985-20 Costs of software to be sold

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