Page 254

TITLE 26-INTERNAL REVENUE CODE In determining whether the 3-year holding period specified in this paragraph has been satisfied, section 1223 shall apply, but no such period shall be deemed to begin before the completion of the manufacture, construction, production, or purchase. (4) Unrealized receivables For purposes of paragraph (3)(C), the term "unrealized receivables or fees" means, to the extent not previously includible in income under the method of accounting used by the corporation, any rights (contractual or other- wise) to payment for- (A) goods delivered, or to be delivered, to the extent the proceeds therefrom would be treated as amounts received from the sale or exchange of property other than a cap- ital asset, or (B) services rendered or to be rendered. (c) Presumption in certain cases (I) In general For purposes of this section, a corporation shall, unless shown to the contrary, be deemed to be a collapsible corporation if (at the time of the sale or exchange, or the distri- bution, described in subsection (a)) the fair market value of its section 341 assets (as de- fined in subsection (b)(3)) is- (A) 50 percent or more of the fair market value of its total assets, and (B) 120 percent or more of the adjusted basis of such section 341 assets. Absence of the conditions described in sub- paragraphs (A) and (B) shall not give rise to a presumption that the corporation was not a collapsible corporation. (2) Determination of total assets In determining the fair market value of the total assets of a corporation for purposes of paragraph (1)(A), there shall not be taken into account- (A) cash, (B) obligations which are capital assets in the hands of the corporation (and govern- mental obligations described in section 1221(5)), and (C) stock in any other corporation. (d) Limitations on application of section In the case of gain realized by a shareholder with respect to his stock in a collapsible corpo- ration, this section shall not apply- (1) unless, at any time after the commence- ment of the manufacture, construction, or production of the property, or at the time of the purchase of the property described In subsection (b)(3) or at any time thereafter, such shareholder (A) owned (or was consid- ered as owning) more than 5 percent in value of the outstanding stock of the corporation, or (B) owned stock which was considered as owned at such time by another shareholder who then owned (or was considered as owning) more than 5 percent in value of the outstanding stock of the corporation; (2) to the gain recognized during a taxable year, unless more than 70 percent of such gain is attributable to the property so manu- factured, constructed, produced, or pur- chased; and (3) to gain realized after the expiration of 3 years following the completion of such manu- facture, construction, production, or pur- chase. For purposes of paragraph (1), the ownership of stock shall be determined in accordance with the rules prescribed in paragraphs (1), (2), (3), (5), and (6) of section 544(a) (relating to person- al holding companies); except that, in addition to the persons prescribed by paragraph (2) of that section, the family of an individual shall include the spouses of that individual's broth- ers and sisters (whether by the whole or half blood) and the spouses of that individual's lineal descendants. (e) Exceptions to application of section (1) Sales or exchanges of stock For purposes of subsection (a)(1), a corpora- tion shall not be considered to be a collapsible corporation with respect to any sale or ex- change of stock of the corporation by a share. holder, if, at the time of such sale or ex- change, the sum of- (A) the net. unrealized appreciation in subsection e) assets of the corporation (as defined in paragraph (5)(A)), plus (B) if the shareholder owns more than 5 percent in value of £he outstanding stock of the corporation the net unrealized apprecia- tion in assets of the corporation (other than assets described in subparagraph (A) which would be subsection (e) assets under clauses (i) and (iii) of paragraph (5)(A) if the share- holder owned more than 20 percent in value of such stock, plus (C) if the shareholder owns more than 20 percent in value of the outstjdlng stock of the corporation and owns, or at uny time during the preceding 3-year period owned, more than 20 percent in value of the out- standing stock of any other corporation more than 70 percent in value of the assets of which are, or were at any time during which such shareholder owned during such 3-year period more than 20 percent in value of the outstanding stock, assets similar or related in service or use to assets comprising more than 70 percent in value of the assets of the corporation, the net unrealized ap- preciation in assets of the corporation (other than assets described in subpara- graph (A) which would be subsection (M) assets under clauses (I) and (iII) of para- graph (5)(A) if the determination whether the property, in the hands of such share- holder, would be property gain from the sale or exchange of which would under any provision of this chapter be considered in whole or in part as ordinary income, were made- (I) by treating any sale or exchange by such shareholder of stock in such other corporation within the preceding 3-year period (but only if at the time of such sale or exchange the shareholder owned more than 20 percent in value of the outstand- ing stock in such other corporation) as a sale or exchange by such shareholder of his proportionate share of the assets of such other corporation, and § 341 Page 254