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TITLE 26-INTERNAL REVENUE CODE (A) by three and one-half the increase in percentage points (including fractions thereof) in excess of 60 and up to and in- cluding 80, and (B) by one and one-half the increase in percentage points (including fractions thereof) in excess of 80. The reduction under this paragraph shall be determined by reference to the increase in per- centage points of the total fair market value of the participating stock or of all the stock, whichever increase is greater. (3) Minimum ownership rule Notwithstanding the provisions of para- graph (1), a net operating loss carryover from a taxable year shall not be reduced under this subsection if, at all times during the last half of such taxable year, any of the persons de- scribed in paragraph (4)(B) (determined on the last day of the taxable year referred to in paragraph (1)(A)) owned at least 40 percent of the total fair market value of the participat- ing stock and of all the stock of the corpora- tion. For purposes of the preceding sentence, persons owning stock of a corporation on the last day of its first taxable year shall be con- sidered to have owned such stock at all times during the last half of such first taxable year. (4) Operating rules For purposes of this subsection- (A) Definition of purchase The term "purchase" means an acquisi- tion of stock the basis of which is deter- mined by reference to its cost to the holder thereof. (B) Description of person or persons The person or persons referred to in para- graph (1)(B) shall be the 15 persons (or such lesser number as there are persons owning the stock on the last day of the taxable year) who own the greatest percentage of the total fair market value of all the stock on the last day of that year, except that if any other person owns the same percentage of such stock at such time as is owned by one of the 15 persons, that other person shall also be included. If any of the persons are so related that the stock owned by one is attributed to the other under the rules specified in sub- paragraph (C), such persons shall be consid- ered as only one person solely for the pur- pose of selecting the 15 persons (more or less) who own the greatest percentage of the total fair market value of all the stock. (C) Constructive ownership Section 318 (relating to constructive own- ership of stock) shall apply in determining the ownership of stock, except that section 318(a)(2)(C) and 318(a)(3)(C) shall be ap- plied without regard to the 50 percent limi- tation contained therein. (D) Short taxable years If one of the taxable years of the corpora- tion referred to in paragraph (1)(B) is a short taxable year, then such paragraph and paragraph (6) shall be applied by substitut- ing "first, second, or third" for "first or second" each time such phrase occurs. (5) Exceptions This subsection shall not apply to a pur- chase or other acquisition of stock (or of an interest in a partnership or trust owning stock in the corporation)- (A) from a person whose ownership of stock would be attributed to the holder by application of paragraph (4)(C) to the extent that such stock would be so attribut- ed; (B) if (and to the extent) the basis thereof is determined under section 1014 or 1023 (relating to property acquired from a dece- dent), or section 1015(a) or (b) (relating to property acquired by gift or transfers in trust); (C) by a security holder or creditor in ex- change for the relinquishment or extinguish- ment in whole or part of a claim against the corporation, unless the claim was acquired for the purpose of acquiring such stock; (D) by one or more persons who were full- time employees of the corporation at all times during the period of 36 months ending on the last day of the taxable year of the cor- poration (or at all times during the period of the corporation's existence, if shorter); (E) by a trust described in section 401(a) which is exempt from tax under section 501(a) and which benefits exclusively the employees (or their beneficiaries) of the cor- poration, including a member of a con- trolled group of corporations (within the meaning of section 1563(a) determined without regard to section 1563(a)(4) and (e)(3)(C)) which includes such corporation; (F) by an employee stock ownership plan meeting the requirements of section 301(d) of the Tax Reduction Act of 1975; or (G) in a recapitalization described in sec- tion 368(a)(1)(E). (6) Successive applications of subsection If- (A) a net operating loss carryover is re- duced under this subsection at the end of a taxable year of a corporation, and (B) any person described in paragraph (4)(B) who owns stock of the corporation on the last day of such taxable year does not own, on the last day of the first or second succeeding taxable year of the corporation, a greater percentage of the total fair market value of the participating stock or of all the stock of the corporation than such person owned on the last day of such taxable year, then, for purposes of applying this subsection as of the end of the first or second succeeding taxable year (as the case may be), stock owned by such person at the end of such succeeding taxable year shall be considered owned by such person at the beginning of the first or second preceding taxable year. Other rules re- lating to the manner and extent of successive applications of this section in the case of in- creases in ownership and transfers of stock by the persons described in paragraph (4)(B) shall be prescribed by regulations issued by the Secretary. Page 281 § 382