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TITLE 26-INTERNAL REVENUE CODE struction, or erection has commenced at the site of such plant facility. The preceding sentence shall not apply if the site of such plant facility is not located on land. (6) Machinery or equipment rule Any piece of machinery or equipment- (A) more than 50 percent of the parts and components of which (determined on the basis of cost) were held by the taxpayer on October 9, 1966, or are acquired by the tax- payer pursuant to a binding contract which was in effect on such date, for inclusion or use in such piece of machinery or equip- ment, and (B) the cost of the parts and components of which is not an insignificant portion of the total cost, shall be treated as property which is not sus- pension period property. (7) Certain lease-back transactions, etc. Where a person who is a party to a binding contract described in paragraph (3) transfers rights in such contract (or in the property to which such contract relates) to another person but a party to such contract retains a right to use the property under a lease with such other person, then to the extent of the transferred rights such other person shall, for purposes of paragraph (3), succeed to the po- sition of the transferor with respect to such binding contract and such property. The pre- ceding sentence shall apply, in any case in which the lessor does not make an election under subsection (d), only if a party to such contract retains a right to use the property under a long-term lease. (8) Certain lease and contract obligations Where, pursuant to a binding lease or con- tract to lease in effect on October 9, 1966, a lessor or lessee is obligated to construct, re- construct, erect, or acquire property specified in such lease or contract, any property so con- structed, reconstructed, erected, or acquired by the lessor or lessee which is section 38 property shall be treated as property which is not suspension period property. In the case of any project which includes property other than the property to be leased to such lessee, the preceding sentence shall be applied, in the case of the lessor, to such other property only if the binding leases and contracts with all lessees in effect on October 9, 1966, cover real property constituting 25 percent or more of the project (determined on the basis of rental value). For purposes of the preceding sentences of this paragraph, in the case of any project where one or more vendor-vendee relationships exist, such vendors and vendees shall be treated as lessors and lessees. Where, pursuant to a binding contract in effect on October 9, 1966, (1) the taxpayer is required to construct, reconstruct, erect, or acquire property specified in the contract, to be used to produce one or more products, and (ii) the other party is required to take substantially all of the products to be produced over a sub- stantial portion of the expected useful life of the property, then such property shall be treated as property which is not suspension period property. Clause (ii) of the preceding sentence shall not apply if a political subdivi- sion of a State is the other party to the con- tract and is required by the contract to make substantial expenditures which benefit the taxpayer. (9) Certain transfers to be disregarded (A) If property or rights under a contract are transferred in- (i) a transfer by ieason of death, or (ii) a transaction as a result of which the basis of the property in the hands of the transferee is determined by reference to its basis in the hands of the transferor by reason of the application of section 332, 351, 361, 371(a), 374(a), 721, or 731. and such property (or the property ac- quired under such contract) would not be treated as suspension period property in the hands of the decedent or the transferor, such property shall not be treated as sus- pension period property in the hands of the transferee. (B) If- (I) property or rights under a contract are acquired in a transaction to which sec- tion 334(b)(2) applies, (ii) the stock of the distributing corpo- ration was acquired before October 10, 1966, or pursuant to a binding contract in effect October 9, 1966, and (it) such property (or the property ac- quired under such contract) would not be treated as suspension period property in the hands of the distributing corporation, such property shall not be treated as sus- pension period property in the hands of the distributee. (10) Property acquired from affiliated corporation For purposes of this subsection, in the case of property acquired by a corporation which is a member of an affiliated group from an- other membnr of the same group- (A) such corporation shall be treated as having acquired such property on the date on which it was acquired by such other member, (B) such corporation shall be treated as having entered into a binding contract for the construction, reconstruction, erection, or acquisition of such property on the date on which such other member entered into a contract for the construction, reconstruc- tion, erection, or acquisition of such proper- ty, and (C) such corporation shall be treated as having commenced the construction, recon- struction, or erection of such property on the date on which such other member com- menced such construction, reconstruction, or erection. For purposes of the preceding sentence, the term "affiliated group" has the meaning as- signed to it by section 1504(a), except that all corporations shall be treated as includible corporations (without any exclusion under section 1504(b)). Page 73