Page 729

TITLE 26-INTERNAL REVENUE CODE PART VII-RECOVFrIES OF FOREIGN EXPROPRIATION LOSSES sec. 1351. Treatment of recoveries of foreign expropriation losses. 1351. Treatment of recoveries of foreign expropri- ation losses (a) Election (1) In general This section shall a4'ply only to a recovery, by a domestic corporation subject to the tax imposed by section 11 or 802, of a foreign ex- propriation loss sustained by such corpora- tion and only if such orporation was subject to the tax imposed by §ection 11 or 802, as the case may be, for the year of the loss and elects to have the pr6visions of this section apply with respect to such loss. (2) Time, manner, and sc6pe An election under sragraph (1) shall be made at such time and' in such manner as the Secretary may prescribe by regulations. An election made with respect to any foreigri ex- propriation loss shall apply to all recoveries in respect of such loss.- (b) Definition of foreign exilropriation loss For purposes of this $ection, the term "for- eign expropriation loss" means any loss sus- tained by reason of the expropriation, interven- tion, seizure, or similar taking of property by the government of any foreign .country, any po- litical subdivision thereof, or any agency or in- strumentality of the foregoing. For purposes of the preceding sentence, a debt which becomes worthless shall, to the extent of any deduction allowed under section 166(a), be treated as a loss. (c) Amount of recovery (1) General rule The amount of any recovery of a foreign ex- propriation loss is the amount of money and the fair market value of other property re- ceived in respect of such loss, determined as of the date of receipt. (2) Special rule for life insurance companies The amount of any recovery of a foreign ex- propriation loss includes, in the case of a life insurance company, the amount of decrease of any item taken into account under section 810(c), to the extent such decrease is attribut- able to the release, by reason of such loss, of its liabilities with respect to such item. (d) Adjustment for prior tax benefits (1) In general That part of the amount of a recovery of a foreign expropriation loss to which this sec- tion applies which, when added to the aggre- gate of the amounts of previous recoveries with respect to such loss, does not exceed the allowable deductions in prior taxable years on account of such loss shall be excluded from gross income for the taxable year of the re- covery for purposes of computing the tax under this subtitle; but there shall be added to, and assessed and collected as a part of, the tax under this subtitle for such taxable year an amount equal to the total increase in the tax under this subtitle for all taxable years which would result by decreasing, in an amount equal to such part of the recovery so excluded; the deductions allowable in the prior taxable years on account of such loss. For purposes of this paragraph, if the loss to which the recovery relates was taken into ac- count as a loss from the sale or exchange of a capital asset, the amount of the loss shall be treated as an allowable deduction even though there were no gains against which to allow such loss. (2) Computation The increase in the tax for each taxable year referred to in paragraph (1) shall be computed in accordance with regulations pre- scribed by the Secretary. Such regulations shall give effect to previous recoveries of any kind (including recoveries described in section 111, relating to recovery of bad debts, etc.) with respect to any prior taxable year, but shall otherwise treat the tax previously deter- mined for any taxable year in accordance with the principles set forth in section 1314(a) (relating to correction of errors). Sub- Ject to the provisions of paragraph (3), all credits allowable against the tax for any tax- able year, and all carryovers and carrybacks affected by so decreasing the allowable deduc- tions, shall be taken into account in comput- ing the increase in the tax. (3) Foreign taxes For purposes of this subsection, any choice made under subpart A of part III of sub- chapter N (relating to foreign tax credit) for any taxable year may be changed. (4) Substitution of current normal tax and surtax rates For purposes of this subsection, the normal tax rate provided iy section 11(b) and t1 surtax rate provided by section 11(c) whicr are in effect for the taxable year of the recov ery shall be treated as having been in effect for all prior taxable years. (e) Gain on recovery That part of the amount of a recovery of a foreign expropriation loss to which this section applies which is not excluded from gross income under subsection (d)(1) shall be consid- ered for the taxable year of the recovery as gain on the involuntary conversion of property as a result of its destruction or seizure and shall be recognized or not recognized as provided in section 1033. (f) Basis of recovered property The basis of property (other than money) re- ceived as a recovery of a foreign expropriation loss to which this section applies shall be an amount equal to its fair market value on the date of receipt, reduced by such part of the gain under subsection (e) which is not recog- nized as provided in section 1033. (g) Restoration of value of investments For purposes of this section, if the value of any interest in, or with respect to, property (in- cluding any interest represented by a security, as defined in section 165(g)(2))- (1) which became worthless by reason of the expropriation, intervention, seizure, or similar taking of such property by the gov- ernment of any foreign country, any political Page 729 § 1351