For purposes of this subparagraph, each item of property shall be considered separately. See paragraph (d) of this section for special rules with respect to certain tax-free acquisitions of property by the DISC.
For purposes of this subparagraph, each item of property shall be considered separately. See paragraph (d) of this section for special rules with respect to certain tax-free acquisitions of property by the DISC.
Thus, for example, if a DISC has a deficit in accumulated earnings and profits at the beginning of a taxable year of $10,000, current earnings and profits of $12,000, no amounts described in paragraphs (a)(1) through (a)(6) of this section for the year, and foreign investment attributable to producer's loans for the taxable year of $5,000, the DISC would have a deemed distribution described in paragraph (a)(7) of this section of $5,000 for the taxable year. On the other hand, suppose the DISC had accumulated earnings and profits of $13,000 at the beginning of the taxable year, accumulated DISC income of $10,000 at the beginning of the taxable year, a deficit in earnings and profits for the taxable year of $12,000, no amounts described in paragraphs (a)(1) through (a)(6) of this section for the taxable year, and foreign investment attributable to producer's loans for the taxable year of $5,000. Under these facts the DISC would have no deemed distribution described in paragraph (a)(7) of this section because the corporation had no DISC income for the taxable year and the current year's deficit in earnings and profits subtracted from the DISC's accumulated DISC income at the beginning of the year produces a negative amount. For rules relating to the carryover to a subsequent year of the $5,000 of foreign investment attributable to producer's loans, see § 1.995-5(a)(6) .
(1) Gross interest derived by Y in 1973 from producer's loans | $7,000 |
(2) Amount of gain on depreciable property (lower of Y's recognized gain ($25,000) or X's gain not recognized on section 1245 property ($20,000)) | 20,000 |
(3) Amount of gain on stock (lower of X's gain not recognized or Y's recognized gain ($8,000) ($5,000)) | 5,000 |
(4) One-half excess of taxable income for 1973 over the sum of lines (1), (2), and (3) (1/2 of ($100,000 minus $32,000)) | 34,000 |
(5) Limitation on lines (1) through (4): | |
(a) Sum of lines (1) through (4) | 66,000 |
(b) Earnings and profits for 1973 | 72,000 |
(c) Lower of lines (a) and (b) | 66,000 |
(6) Amount under paragraph (a)(5) of this section: | |
(a) Foreign investment attributable to producer's loans under § 1.995-5 | 10,000 |
(b) Sum of the lower of accumulated earnings and profits at beginning of 1973 ($5,000) or accumulated DISC income at beginning of 1973 ($6,000) and excess of earnings and profits for 1973 over line (5)(c) ($72,000 minus $66,000) | 11,000 |
(c) Lower of lines (a) and (b) | 10,000 |
(7) Total deemed distribution (sum of lines (5)(c) and (6)(c)) | 76,000 |
(5) Limitation on lines (1) through (4): | |
(a) Line (5)(a) of example 1 | $66,000 |
(b) Earnings and profits for 1973 | 60,000 |
(c) Lower of lines (a) and (b) | 60,000 |
(6) Amount under paragraph (a)(5) of this section: | |
(a) Line (6)(a) of example 1 | 10,000 |
(b) Sum of the lower of accumulated earnings and profits at beginning of 1973 ($5,000) or accumulated DISC income at beginning of 1973 ($6,000) plus excess of earnings and profits for 1973 over line (5)(c) ($60,000 minus $60,000) | 5,000 |
(c) Lower of lines (a) and (b) | 5,000 |
(7) Total deemed distribution (sum of lines (5)(c) and (6)(c)) | 65,000 |
(5) Limitation on lines (1) through (4): | |
(a) Line (5)(a) of example 1 | $66,000 |
(b) Earnings and profits for 1973 | 72,000 |
(c) Lower of lines (a) and (b) | 66,000 |
(6) Amount under paragraph (a)(5) of this section: | |
(a) Line (6)(a) of example 1 | 10,000 |
(b) Sum of accumulated earnings and profits at beginning of 1973 (not less than $0), and excess of earnings and profits for 1973 over amount in line (5)(c) ($72,000 minus $66,000) | 6,000 |
(c) Lower of lines (a) and (b) | 6,000 |
(7) Total deemed distribution sum of lines (5)(c) and (6)(c) | 72,000 |
then upon a disposition of such other property in a third transaction by the DISC such other property shall be treated as though it had been transferred to the DISC in the first transaction. Thus, if the first transaction is a purchase of the property for cash, then paragraphs (a)(2) and (3) of this section will not apply to a sale by the DISC of the other property acquired in the second transaction.
26 C.F.R. §1.995-2
Secs. 995(e)(7), (8) and (10), 995(g) and 7805 of the Internal Revenue Code of 1954 (90 Stat. 1655, 26 U.S.C. 995 (e)(7), (8) and (10) ; 90 Stat. 1659, 26 U.S.C. 995(g) ; and 68A Stat 917, 26 U.S.C. 7805 )