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TITLE 26-INTERNAL REVENUE CODE foreign corporation beginning after December 31, 1962, and if section 337(a) would apply if such foreign corporation were a domestic cor- poration, earnings and profits of the foreign corporation attributable (under regulations prescribed by the Secretary) to any net gain from the sale or exchange of property. (3) Less developed country corporations under prior law Earnings and profits of a foreign corpora- tion which were accumulated during any tax- able year beginning before January 1, 1976, while such corporation was a less developed country corporation under section 902(d) as In effect before the enactment of the Tax Re- duction Act of 1975. (4) United States income Any item includible In gross income of the foreign corporation under this chapter- (A) for any taxable year beginning before January 1, 1967, as income derived from sources within the United States of a for- eign corporation engaged In trade or busi- ness within the United States, or (B) for any taxable year beginning after December 31, 1966, as income effectively connected with the conduct by such corpo- ration of a trade or business within the United States. This paragraph shall not apply with respect to any item which is exempt from taxation (or is subject to a reduced rate of tax) pursu- ant to a treaty obligation of the United States. (5) Amounts included in gross income under sec- tion 1247 If the United States person whose stock is sold or exchanged was a qualified shareholder (as defined in section 1247(c)) of a foreign corporation which was a foreign investment company (as described in section 1246(b)(1)), the earnings and profits of the foreign corpo- ration for taxable years in which such person was a qualified shareholder. (e) Sales or exchanges of stock in certain domestic corporations Under regulations prescribed by the Secre- tary, if- (1) a United States person sells or ex- changes stock of a domestic corporation, or receives a distribution from a domestic corpo- ration which, under section 302 or 331, is treated as an exchange of stock, and (2) such domestic corporation was formed or availed of principally for the holding, di- rectly or indirectly, of stock of one or more foreign corporations, such sale or exchange shall, for purposes of this section, be treated as a sale dr exchange of the stock of the foreign corporation or corporations held by the domestic corporation. (f) Certain section 311, 336, or 337 transactions (1) In general If- (A) a domestic corporation satisfies the stock ownership requirements of subsection (a)(2) with respect to a foreign corporation, and (B) such domestic corporation distributes, sells, or exchanges stock of such foreign corporation in a transaction to which sec- tion 311, 336, or 337 applies, then, notwithstanding any other provision of this subtitle, an amount equal to the excess of the fair market value of such stock over Its adjusted basis in the hands of the domestic corporation shall be included in the gross income of the domestic corporation as a divi- dend to the extent of the earnings and profits of the foreign corporation attributable (under regulations prescribed by the Secretary) to such stock which were accumulated in tax- able years of such foreign corporation begin- ning after December 31, 1982, and during the period or periods the stock was held by such domestic corporation while such foreign cor- poration was a controlled foreign corporation. For purposes of subsections (c)(2), (d), and (h), a distribution, sale, or exchange of stock to which this subsection applies shall be treated as a sale of itock to which subsection (a) applies. (2) Exception for certain distributions In the case of any distribution of stock of a foreign corporation, paragraph (1) shall not apply if such distribution is to a domestic cor- poration- (A) which is treated under this section as holding such stock for the period for which the stock was held by the distributing cor- poration, and (B) which, immediately after the distribu- tion, satisfies the stock ownership require- ments of subsection (a)(2) with respect to such foreign corporation. (3) Nonapplication of paragraph (1) in certain cases Paragraph (1) shall not apply to a sale or exchange to which section 337 applies if- (A) throughout the period or periods the stock of the foreign corporation was held by the domestic corporation (or predecessor re- ferred to in paragraph (2)) all the stock of such domestic corporation was owned by United States persons who satisfied the 10- percent stock ownership requirements of subsection (a)(2) with respect to such do- mestic corporation, and (B) subsection (a) applies to the proceeds of the sale or exchange and also applied to all transactions described in subsection (e)(1) which took place during the period or periods referred to in subparagraph (A). (4) Application to cases described in subsection () To the extent that earnings and profits are taken into account under this subsection, they shall be excluded and not taken into ac- count for purposes of subsection (e). (g) Exceptions This section shall not apply to- (1) distributions to which section 303 (relat- ing to distributions in redemption of stock to pay death taxes) applies; (2) gain realized on exchanges to which sec- tion 356 (relating to receipt of additional con- sideration in certain reorganizations) applies; or Page 703 § 1248