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TITLE 26-INTERNAL REVENUE CODE a reorganization described in section 368(a)(1)(B) or (C) to the extent the ac- quired corporation does not distribute the stock received by it to its own shareholders. (C) Certain asset acquisitions If a loss corporation receives stock of the acquiring corporation in a reorganization described in section 368(a)(1)(C) and does not distribute such stock to its shareholders, paragraph (1)(B) shall be applied by treat- ing the shareholders of the loss corporation as owning (immediately after the reorgani- zation) such undistributed stock in propor- tion to the fair market value of the stock which such shareholders own in the loss cor- poration. (5) Certain stock-for-stock reorganizations In the case of a reorganization described in section 368(a)(1)(B) in which the acquired corporation is a loss corporation- (A) Stock which is exchanged Paragraphs (1)(B) and (2) shall be applied by reference to the ownership of stock of the loss corporation (rather than the acquiring corporation) immediately after the reorga- nization. Shareholders of the loss corpora- tion who exchange stock of the loss corpora- tion shall be treated as owning (immediate- ly after the reorganization) a percentage of the total fair market value of the participat- ing stock and of all the stock of the loss cor- poration acquired in the exchange by the ac- quiring corporation which is equal to the percentage of the total fair market value of the participating stock and of all the stock, respectively, of the acquiring corporation owned (immediately after the reorganiza- tion) by such shareholders. (B) Stock which is not exchanged Stock of the loss corporation owned by shareholders immediately before the reorga- nization which was not exchanged in the re- organization shall be taken into account in applying paragraph (1)(B). For purposes of the preceding sentence, the acquiring corpo- ration (or a corporation controlled by the acquiring corporation) shall not be treated as a shareholder of the loss corporation with respect to stock of the loss corporation ac- quired in a transaction described in para- graph (1), or in subsection (a)(1)(C) (unless excepted by subsection (a)(5)), during the 36-month period ending on the date of the exchange. (C) Triangular exchanges For purposes of applying the rules in this paragraph, if the shareholders of the loss corporation receive stock of a corporation controlling the acquiring corporation, such shareholders shall be treated as owning a percentage of the participating stock and of all the stock of the acquiring corporation owned by the controlling corporation equal to the percentage of the total fair market value of the participating stock and of all the stoclc, respectively, which such share- holders own of the controlling corporation immediately after the reorganization. (6) Exceptions The limitations in this subsection shall not apply- (A) if the same persons own substantially all the stock of the acquiring corporation and of the other corporation in substantial- ly the same proportions; or (B) to a net operating loss carryover from a taxable year if the acquiring or acquired corporation owned at least 40 percent of the total fair market value of the participating stock and of all the stock of the loss corpora- tion at all times during the last half of such taxable year, For purposes of subparagraph (A), if the ac- quiring or acquired corporation is controlled by another corporation, the shareholders of the controlling corporation shall be consid- ered as also owning the stock owned by the controlling corporation in that proportion which the total fair market value of the stock which each shareholder owns in the control- ling corporation bears to the total fair market value of all the stock in the controlling corpo- ration. (c) Rules relating to stock For purposes of this section- (1) The term "stock" means all shares of stock, except stock which- (A) is not entitled to vote, (B) is fixed and preferred as to dividends and does not participate in corporate growth to any significant extent, (C) has redemption and liquidation rights which do not exceed the paid-in capital or par value represented by such stock (except for a reasonable redemption premium in excess of such paid-in capital or par value), and (D) is not convertible into another class of stock. (2) The term "participating stock" means stock (including common stock) which repre- sents an interest in the earnings and assets of the issuing corporation which is not limited to a stated amount of money or property or percentage of paid-in capital or par value, or by any similar formula. (3) The Secretary shall prescribe regulations under which- (A) stock or convertible securities shall be treated as stock or participating stock, or (B) stock (however denoted) shall not be treated as stock or participating stock, by reason of conversion and call rights, rights in earnings and assets, priorities and prefer- ences as to distributions of earnings or assets, and similar factors. REERmUCES IN TEXT Section 301(d) of the Tax Reduction Act of 1975, re- ferred to in subsec. (a)(5)(F), is set out as a note under section 46 of this title. AMENDMENTS 1964-Subsec. (a)(3). Pub. L. 88-554 inserted the ref- erence to section 318(a)(3)(C) of this title. EFFECTIVE DATE OF 1976 AMENDMENT Section 806(g)(2), (3) of Pub. L. 94-455 provided that: Page 283