
From the U.S. Code Online via GPO Access
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[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC1502]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                     CHAPTER 6--CONSOLIDATED RETURNS
 
                Subchapter A--Returns and Payment of Tax
 
Sec. 1502. Regulations

    The Secretary shall prescribe such regulations as he may deem 
necessary in order that the tax liability of any affiliated group of 
corporations making a consolidated return and of each corporation in the 
group, both during and after the period of affiliation, may be returned, 
determined, computed, assessed, collected, and adjusted, in such manner 
as clearly to reflect the income-tax liability and the various factors 
necessary for the determination of such liability, and in order to 
prevent avoidance of such tax liability.

(Aug. 16, 1954, ch. 736, 68A Stat. 367; Pub. L. 94-455, title XIX, 
Sec. 1906(b) (13)(A), Oct. 4, 1976, 90 Stat. 1834.)


                               Amendments

    1976--Pub. L. 94-455 struck out ``or his delegate'' after 
``Secretary''.


                         Dual Resident Companies

    Pub. L. 100-647, title VI, Sec. 6126, Nov. 10, 1988, 102 Stat. 3713, 
provided that:
    ``(a) General Rule.--In the case of a transaction which--
        ``(1) involves the transfer after the date of the enactment of 
    this Act [Nov. 10, 1988] by a domestic corporation, with respect to 
    which there is a qualified excess loss account, of its assets and 
    liabilities to a foreign corporation in exchange for all of the 
    stock of such foreign corporation, followed by the complete 
    liquidation of the domestic corporation into the common parent, and
        ``(2) qualifies, pursuant to Revenue Ruling 87-27, as a 
    reorganization which is described in section 368(a)(1)(F) of the 
    1986 Code,
then, solely for purposes of applying Treasury Regulation section 
1.1502-19 to such qualified excess loss account, such foreign 
corporation shall be treated as a domestic corporation in determining 
whether such foreign corporation is a member of the affiliated group of 
the common parent.
    ``(b) Treatment of Income of New Foreign Corporation.--
        ``(1) In general.--In any case to which subsection (a) applies, 
    for purposes of the 1986 Code--
            ``(A) the source and character of any item of income of the 
        foreign corporation referred to in subsection (a) shall be 
        determined as if such foreign corporation were a domestic 
        corporation,
            ``(B) the net amount of any such income shall be treated as 
        subpart F income (without regard to section 952(c) of the 1986 
        Code), and
            ``(C) the amount in the qualified excess loss account 
        referred to in subsection (a) shall--
                ``(i) be reduced by the net amount of any such income, 
            and
                ``(ii) be increased by the amount of any such income 
            distributed directly or indirectly to the common parent 
            described in subsection (a).
        ``(2) Limitation.--Paragraph (1) shall apply to any item of 
    income only to the extent that the net amount of such income does 
    not exceed the amount in the qualified excess loss account after 
    being reduced under paragraph (1)(C) for prior income.
        ``(3) Basis adjustments not applicable.--To the extent paragraph 
    (1) applies to any item of income, there shall be no increase in 
    basis under section 961(a) of such Code on account of such income 
    (and there shall be no reduction in basis under section 961(b) of 
    such Code on account of an exclusion attributable to the inclusion 
    of such income).
        ``(4) Recognition of gain.--For purposes of paragraph (1), if 
    the foreign corporation referred to in subsection (a) transfers any 
    property acquired by such foreign corporation in the transaction 
    referred to in subsection (a) (or transfers any other property the 
    basis of which is determined in whole or in part by reference to the 
    basis of property so acquired) and (but for this paragraph) there is 
    not full recognition of gain on such transfer, the excess (if any) 
    of--
            ``(A) the fair market value of the property transferred, 
        over
            ``(B) its adjusted basis,
    shall be treated as gain from the sale or exchange of such property 
    and shall be recognized notwithstanding any other provision of law. 
    Proper adjustment shall be made to the basis of any such property 
    for gain recognized under the preceding sentence.
    ``(c) Definitions.--For purposes of this section--
        ``(1) Common parent.--The term `common parent' means the common 
    parent of the affiliated group which included the domestic 
    corporation referred to in subsection (a)(1).
        ``(2) Qualified excess loss account.--The term `qualified excess 
    loss account' means any excess loss account (within the meaning of 
    the consolidated return regulations) to the extent such account is 
    attributable--
            ``(A) to taxable years beginning before January 1, 1988, and
            ``(B) to periods during which the domestic corporation was 
        subject to an income tax of a foreign country on its income on a 
        residence basis or without regard to whether such income is from 
        sources in or outside of such foreign country.
    The amount of such account shall be determined as of immediately 
    after the transaction referred to in subsection (a) and without, 
    except as provided in subsection (b), diminution for any future 
    adjustment.
        ``(3) Net amount.--The net amount of any item of income is the 
    amount of such income reduced by allocable deductions as determined 
    under the rules of section 954(b)(5) of the 1986 Code.
        ``(4) Second same country corporation may be treated as domestic 
    corporation in certain cases.--If--
            ``(A) another foreign corporation acquires from the common 
        parent stock of the foreign corporation referred to in 
        subsection (a) after the transaction referred to in subsection 
        (a),
            ``(B) both of such foreign corporations are subject to the 
        income tax of the same foreign country on a residence basis, and
            ``(C) such common parent complies with such reporting 
        requirements as the Secretary of the Treasury or his delegate 
        may prescribe for purposes of this paragraph,
    such other foreign corporation shall be treated as a domestic 
    corporation in determining whether the foreign corporation referred 
    to in subsection (a) is a member of the affiliated group referred to 
    in subsection (a) (and the rules of subsection (b) shall apply (i) 
    to any gain of such other foreign corporation on any disposition of 
    such stock, and (ii) to any other income of such other foreign 
    corporation except to the extent it establishes to the satisfaction 
    of the Secretary of the Treasury or his delegate that such income is 
    not attributable to property acquired from the foreign corporation 
    referred to in subsection (a)).''


           Special Rule for Disposition of Stock of Subsidiary

    Pub. L. 99-514, title VI, Sec. 647, Oct. 22, 1986, 100 Stat. 2294, 
provided that: ``If for a taxable year of an affiliated group filing a 
consolidated return ending on or before December 31, 1987, there is a 
disposition of stock of a subsidiary (within the meaning of Treasury 
Regulation section 1.1502-19), the amount required to be included in 
income with respect to such disposition under Treasury Regulation 
section 1.1502-19(a) shall, notwithstanding such section, be included in 
income ratably over the 15-year period beginning with the taxable year 
in which the disposition occurs. The preceding sentence shall apply only 
if such subsidiary was incorporated on December 24, 1969, and is a 
participant in a mineral joint venture with a corporation organized 
under the laws of the foreign country in which the joint venture mineral 
project is located.''

                  Section Referred to in Other Sections

    This section is referred to in sections 1501, 1503 of this title.
