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TITLE 26-INTERNAL REVENUE CODE able to gross income which is not effec- tively connected with the conduct of a trade or business within the United States. For purposes of clause (i), the gross income of a foreign corporation for any period before its first taxable year beginning after December 31, 1966, which is effectively con- nected with the conduct of a trade or busi- ness within the United States is an amount equal to the gross income for such period from sources within the United States. For purposes of clause (ii), the gross income of a foreign corporation for any period before its first taxable year beginning after De- cember 31, 1966, which is not effectively connected with the conduct of a trade or business within the United States is an amount equal to the gross income for such period from sources without the United States. (D) Foreign corporate distributees In the case of a distribution to a share- holder which is a foreign corporation, if Cie amount received by the foreign corporation is not effectively connected with the con- duct by it of a trade or business within the United States, the amount of the money re- ceived, plus the fair market value of the other property received. (2) Reduction for liabilities The amount of any distribution determined under paragraph (1) shall be reduced (but not below zero) by- (A) the amount of any liability of the cor- poration assumed by the shareholder in connection with the distribution, and (B) the amount of any liability to which the property received by the shareholder is subject immediately before, and immediate- ly after, the distribution. (3) Determination of fair market value For purposes of this section, fair market value shall be determined as of the date of the distribution. (c) Amount taxable In the case of a distribution to which subsec. tion (a) applies- (1) Amount constituting dividend That portion of the distribution which is a dividend (as defined in section 316) shall be included in gross income. (2) Amount applied against basis That portion of the distribution which is not a dividend shall be applied against and reduce the adjusted basis of the stock. (3) Amount in excess of basis (A) In general Except as provided in subparagraph (B), that portion of the distribution which is not a dividend, to the extent that it exceeds the adjusted basis of the stock, shall be treated as gain from the sale or exchange of proper- ty. (B) Distributions out of increase in value accrued before March 1, 1913 That portion of the distribution which is not a dividend, to the extent that it exceeds the adjusted basis of the stock and to the extent that it is out of increase in value ac- crued before March 1, 1913, shall be exempt from tax. (d) Basis The basis of property received in a distribu- tion to which subsection (a) applies shall be- (1) Noncorporate distributees If the shareholder is not a corporation, the fair market value of such property. (2) Corporate distributees If the shareholder is a corporation, unless paragraph (3) applies, whichever of the fol- lowing is the lesser: (A) the fair market value of such proper- ty; or (B) the adjusted basis (in the hands of the distributing corporation immediately before the distribution) of such property, in- creased in the amount of gain to the distrib- uting corporation which is recognized under subsection (b), (c), or (d) of section 311, under section 341(f), or under section 617(d)(1), 1245(a), 1250(a), 1251(c), 1252(a), or 1254(a). (3) Foreign corporate distributees In the case of a distribution of property to a shareholder which is a foreign corporation, if the amount received by the foreign corpora- tion is not effectively connected with the con- duct by it of a trade or business within the United States, the fair market value of the property received. (4) Certain corporate distributees of foreign corpo. ration In the case of property described in subpar- agraph (C) of s ibsection (b)(1), the basis shall be determned by substituting the amount determined under such subparagraph (C) for the amount described in paragraph (2) of this subsection. (e) Special rules (1) For distributions in redemption of stock, see sec- tion 302. (2) For distributions in partial or complete liquidation, see part 11 (sec. 331 and following). (3) For distributions in corporate organizations and re. organizations, see part III (sec. 351 and following). (4) For partial exclusion from gross income of divi- dends received by individuals, see section 116. (Aug. 16, 1954, ch. 736, 68A Stat. 84; Feb. 2, 1962, Pub. L. 87-403, § 2(a), 76 Stat. 5; Oct. 16, 1962, Pub. L. 87-834, §§ 5(a), (b), 13(f)(2), 76 Stat. 977, 1035; Feb. 26, 1964, Pub. L. 88-272, title II, § 231(b)(2), 78 Stat. 105; Aug. 22, 1964, Pub. L. 88-484, § 1(b)(1), 78 Stat. 597; Sept. 12, 1966, Pub. L. 89-570, § 1(b)(2), 80 Stat. 762; Nov. 13, 1966, Pub. L. 89-809, title I, § 104(f), 80 Stat. 1559; Dec. 30, 1969, Pub. L. 91-172, title II, § 211(b)(1), (2), title IX, § 905(b)(2), 83 Stat. 570, 714; Dec. 10, 1971, Pub. L. 92-178, title III, § 312(a), 85 Stat. 526; Oct. 4, 1976, Pub. L. 94- 455, title II, § 205(c)(1)(B), (C), title XIX, § 1901(a)(41), (b)(32)(A), 1906(b)(13)(A), 90 Stat. 1535, 1771, 1800, 1834.) § 301 Page 230