
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: 26USC1551]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                     CHAPTER 6--CONSOLIDATED RETURNS
 
                       Subchapter B--Related Rules
 
                           PART I--IN GENERAL
 
Sec. 1551. Disallowance of the benefits of the graduated 
        corporate rates and accumulated earnings credit
        

(a) In general

    If--
        (1) any corporation transfers, on or after January 1, 1951, and 
    on or before June 12, 1963, all or part of its property (other than 
    money) to a transferee corporation,
        (2) any corporation transfers, directly or indirectly, after 
    June 12, 1963, all or part of its property (other than money) to a 
    transferee corporation, or
        (3) five or fewer individuals who are in control of a 
    corporation transfer, directly or indirectly, after June 12, 1963, 
    property (other than money) to a transferee corporation,

and the transferee corporation was created for the purpose of acquiring 
such property or was not actively engaged in business at the time of 
such acquisition, and if after such transfer the transferor or 
transferors are in control of such transferee corporation during any 
part of the taxable year of such transferee corporation, then for such 
taxable year of such transferee corporation the Secretary may (except as 
may be otherwise determined under subsection (c)) disallow the benefits 
of the rates contained in section 11(b) which are lower than the highest 
rate specified in such section, or the accumulated earnings credit 
provided in paragraph (2) or (3) of section 535(c), unless such 
transferee corporation shall establish by the clear preponderance of the 
evidence that the securing of such benefits or credit was not a major 
purpose of such transfer.

(b) Control

    For purposes of subsection (a), the term ``control'' means--
        (1) With respect to a transferee corporation described in 
    subsection (a)(1) or (2), the ownership by the transferor 
    corporation, its shareholders, or both, of stock possessing at least 
    80 percent of the total combined voting power of all classes of 
    stock entitled to vote or at least 80 percent of the total value of 
    shares of all classes of the stock; or
        (2) With respect to each corporation described in subsection 
    (a)(3), the ownership by the five or fewer individuals described in 
    such subsection of stock possessing--
            (A) at least 80 percent of the total combined voting power 
        of all classes of stock entitled to vote or at least 80 percent 
        of the total value of shares of all classes of the stock of each 
        corporation, and
            (B) more than 50 percent of the total combined voting power 
        of all classes of stock entitled to vote or more than 50 percent 
        of the total value of shares of all classes of stock of each 
        corporation, taking into account the stock ownership of each 
        such individual only to the extent such stock ownership is 
        identical with respect to each such corporation.

For purposes of this subsection, section 1563(e) shall apply in 
determining the ownership of stock.

(c) Authority of the Secretary under this section

    The provisions of section 269(c) and the authority of the Secretary 
under such section, shall, to the extent not inconsistent with the 
provisions of this section, be applicable to this section.

(Aug. 16, 1954, ch. 736, 68A Stat. 371; Pub. L. 85-866, title II, 
Sec. 205(a), Sept. 2, 1958, 72 Stat. 1680; Pub. L. 88-272, title II, 
Sec. 235(b), Feb. 26, 1964, 78 Stat. 125; Pub. L. 94-12, title III, 
Sec. 304(b), Mar. 29, 1975, 89 Stat. 45; Pub. L. 94-455, title XIX, 
Secs. 1901(a)(158), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1790, 1834; 
Pub. L. 95-600, title III, Sec. 301(b)(18)(A), (B), Nov. 6, 1978, 92 
Stat. 2823; Pub. L. 97-34, title II, Sec. 232(b)(2), Aug. 13, 1981, 95 
Stat. 250; Pub. L. 99-514, title XVIII, Sec. 1899A(36), Oct. 22, 1986, 
100 Stat. 2960.)


                               Amendments

    1986--Subsec. (c). Pub. L. 99-514 substituted ``section 269(c)'' for 
``section 269(b)''.
    1981--Subsec. (a). Pub. L. 97-34 struck out ``$150,000'' before 
``accumulated earnings credit''.
    1978--Pub. L. 95-600, Sec. 301(b)(18)(B), substituted ``the benefits 
of the graduated corporate rates'' for ``surtax exemption'' in section 
catchline.
    Subsec. (a). Pub. L. 95-600, Sec. 301(b)(18)(A), in provisions 
following par. (3) substituted ``disallow the benefits of the rates 
contained in section 11(b) which are lower than the highest rate 
specified in such section'' for ``disallow the surtax exemption (as 
defined in section 11(d))'' and ``such benefits or'' for ``such 
exemption or''.
    1976--Subsec. (a). Pub. L. 94-455 Secs. 1901(a)(158), 
1906(b)(13)(A), substituted ``subsection (c)'' for ``subsection (d)'' 
after ``determined under'' and struck out ``or his delegate'' after 
``Secretary''.
    1975--Subsec. (a). Pub. L. 94-12 substituted ``$150,000'' for 
``$100,000''.
    1964--Pub. L. 88-272 amended section generally, and among other 
changes, designated provisions as subsecs. (a) to (c), included among 
corporations who are disallowed surtax exemption and accumulated 
earnings credit, corporations, and five or fewer individuals in charge 
of a corporation who, directly or indirectly, transfer property in 
contravention of subsec. (a) after June 12, 1963, substituted provisions 
permitting the Secretary or his delegate to disallow the exemption or 
the earnings credit, for provisions which disallowed the exemption and 
the credit except as otherwise determined by the Secretary of his 
delegate, provisions that for purposes of determining ownership of 
stock, section 1563(e) shall apply, for provisions which determined 
ownership in accordance with section 544, and defined control, with 
respect to corporations described in subsec. (a)(3), to include the 
additional test as stated in subsec. (b)(2)(B).
    1958--Pub. L. 85-866 substituted ``$100,000'' for ``$60,000''.


                    Effective Date of 1981 Amendment

    Amendment by Pub. L. 97-34 applicable to taxable years beginning 
after Dec. 31, 1981, see section 232(c) of Pub. L. 97-34, set out as a 
note under section 535 of this title.


                    Effective Date of 1978 Amendment

    Amendment by Pub. L. 95-600 applicable to taxable years beginning 
after Dec. 31, 1978, see section 301(c) of Pub. L. 95-600, set out as a 
note under section 11 of this title.


                    Effective Date of 1976 Amendment

    Amendment by section 1901(a)(158) of Pub. L. 94-455 applicable with 
respect to taxable years beginning after Dec. 31, 1976, see section 
1901(d) of Pub. L. 94-455, set out as a note under section 2 of this 
title.


                    Effective Date of 1975 Amendment

    Amendment by Pub. L. 94-12 applicable to taxable years beginning 
after Dec. 31, 1974, see section 305(c) of Pub. L. 94-12, set out as a 
note under section 535 of this title.


                    Effective Date of 1964 Amendment

    Section 235(d) of Pub. L. 88-272 provided that: ``The amendments 
made by subsections (a) and (c) [enacting sections 1561 to 1563 of this 
title and amending sections 269, 441, and 802 of this title] shall apply 
with respect to taxable years ending after December 31, 1963. The 
amendment made by subsection (b) [amending this section] shall apply 
with respect to transfers made after June 12, 1963.''


                    Effective Date of 1958 Amendment

    Amendment by Pub. L. 85-866 applicable with respect to taxable years 
beginning after Dec. 31, 1957, see section 205(b) of Pub. L. 85-866, set 
out as a note under section 535 of this title.


           Plan Amendments Not Required Until January 1, 1989

    For provisions directing that if any amendments made by subtitle A 
or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or title XVIII 
[Secs. 1800-1899A] of Pub. L. 99-514 require an amendment to any plan, 
such plan amendment shall not be required to be made before the first 
plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. 
L. 99-514, as amended, set out as a note under section 401 of this 
title.

                  Section Referred to in Other Sections

    This section is referred to in sections 12, 535 of this title.
