For purposes of this subdivision, distributions made by such corporation for any taxable year shall be considered first made out of earnings and profits for such year other than earnings and profits referred to in (a) of this subdivision.
A retains the right to vote the stock unless a default occurs by A. Under paragraph (c)(2) of this section, the assets of X Corporation serve indirectly as security for A's performance of A's obligation to repay the loan and X Corporation will be considered a pledgor or guarantor with respect to that obligation. For purposes of paragraph (b) of § 1.956-1 , X Corporation will be considered to hold A's obligation to repay the bank $100,000 and under paragraph (e)(2) of § 1.956-1 , the amount taken into account in computing X Corporation's aggregate investment in United States property on December 31, 1981, is the unpaid principal amount of the obligation on that date.
Cost of property | $100,000 | |
Less: Reserve for depreciation | 10,000 | |
Adjusted basis of property | 90,000 | |
Less: Liability to which property is subject: | ||
Gross amount of mortgage | $80,000 | |
Payment during 1964 | 16,000 | |
64,000 | ||
Amount taken into account (12-31-64) | 26,000 |
26 C.F.R. §1.956-2
Secs. 956(c), 7805, Internal Revenue Code of 1954 (76 Stat. 1017, 68A Stat. 917; (26 U.S.C. 956(c) and 7805 respectively)