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TITLE 26-INTERNAL REVENUE CODE (b) Reorganizations (1) In general If one corporation acquires the stock or assets of another corporation in a reorganiza- tion described in section 368(a)(1)(A), (B), (C), (D) (but only if the requirements of sec- tion 354(b)(1) are met), or (F), and if- (A) the acquiring or acquired corporation has a net operating loss for the taxable year which includes the date of the acquisition, or a net operating loss carryover from a prior taxable year to such taxable year, and (B) the shareholders (immediately before the reorganization) of such corporation (the 'loss corporation". as the result of owning stock of the loss corporation, own (immedi- ately after the reorganization) less than 40 percent of the total fair market value of the participating stock or of all the stock of the acquiring corporation, then the net operating loss carryover (if any) of the losS corporation from the taxable year which includes the date of the acquisition, and the net operating loss carryovers (if any) of the loss corporation from prior taxable years to such taxable year and subsequent tax- able years, shall be reduced by the percentage determined under paragraph (2). (2) Reduction of net operating loss carryover (A) Ownership of 20 percent or more If such shareholders own less than 40 per- cent, but not less than 20 percent, of the total fair market value of the participating stock or of all the stock of the acquiring cor- poration, the reduction applicable under paragraph (1) shall be the percentage equal to the number of percentage points (includ- ing fractions thereof) less than 40 percent, multiplied by three and one-half. (B) Ownership of less than 20 percent If such shareholders own less than 20 per- cent of the total fair market value of the participating stock or of all the stock of the acquiring corporation, the reduction appli- cable under paragraph (1) shall be the sum of- (i) the percentage that would be deter- mined under subparagraph (A) if the shareholders owned 20 percent of such stock, plus. (ii) the percentage equal to the number of percentage points (including fractions thereof) of such stock less than 20 percent, multiplied by one and one-half. The reduction under this paragraph shall be determined by reference to the lesser of the percentage of the total fair market value of the participating stock or of all the stock of the acquiring corporation owned by such shareholders. (3) Losses of controlled corporations For purposes of this subsection- (A) Holding companies If, immediately before the reorganization, the acquiring or acquired corporation con- trols a corporation which has a net operat- ing loss for the taxable year which includes the date of the acquisition, or a net operat- ing loss carryover from a prior taxable year to such taxable year, the acquiring or ac- quired corporation, as the case may be, shall be treated as the loss corporation (whether or not such corporation is a loss corpora- tion). The reduction, if any, so determined under paragraph (2) shall be applied to the losses of such controlled corporation. (B) Triangular reorganizations Except as otherwise provided in para- graph (5), if the shareholders of the loss cor- poration (immediately before the reorgani- zation) own, as a result of the reorganiza- tion, stock in a corporation controlling the acquiring corporation, such shareholders shall be treated as owning (immediately after the reorganization) a percentage of the total fair market value of the participating stock and of all the stock of the acquiring corporation owned by the controlling corpo- ration equal to the percentage of the total fair market value of the participating stock and of all the stock, respectively, of the con- trolling corporation owned by such share- holders. (4) Special rules For purposes of applying paragraph (1)(B)- (A) Certain related transactions If, immediately before the reorganiza- tion- (i) one or more shareholders of the loss corporation own stock of such corpora- tion which such shareholder acquired during the 36-month period ending on the date of the acquisition in a transaction described in paragraph (1) or in subsec- tion (a)(1)(C) (unless excepted by subsec- tion (a)(5)), and (ii) such shareholders own more than 50 percent of the total fair market value of the stock of another corporation a party to the reorganization, or any such share- holder is a corporation controlled by an- other corporation a party to the reorgani- zation, then such shareholders shall not be treated as shareholders of the loss corporation with respect to such stock. (B) Certain prior ownership of loss corporation If, immediately before the reorganization, the acquiring or acquired corporation owns stock of the loss corporation, then para- graph (1)(B) shall be applied by treating the shareholders of the loss corporation as owning an additional amount of the total fair market value of the participating stock and of all the stock of the acquiring corpo- ration, as a result of owning stock in the loss corporation, equal to the total fair market value of the participating stock and of all the stock, respectively, of the loss cor- poration owned (immediately before the re- organization) by the acquiring or acquired corporation. This subparagraph shall not apply to stock of the loss corporation owned by the acquiring or acquired corporation if such stock was acquired by such corpora- tion within the 36-month period ending on the date of the reorganization in a transac- tion described in subsection (a)(1)(C) (unless excepted by subsection (a)(5)); or to § 382 Page 282