NORTH CAROLINA GENERAL ASSEMBLY

1961 SESSION

 

 

CHAPTER 1093

HOUSE BILL 289

 

 

AN ACT TO AMEND G.S. 105‑144 RELATING TO THE DETERMINATION OF GAIN OR LOSS FOR INCOME TAX PURPOSES.

 

The General Assembly of North Carolina do enact:

Section 1.  Subsection (a) of Section 105‑144 of the General Statutes is hereby amended so that the same shall hereafter read as follows:

"(a)       For the purpose of ascertaining the gain or loss from the sale or other disposition (other than a distribution to which Subsection (c1) of this Section applies) of property acquired after January 1, 1921, the basis shall be the cost thereof; provided, however, that in the case of property which was included in the last preceding annual inventory used in determining net income in a return under this Article, such inventory value shall be the basis in lieu of cost. In the case of property (other than property involved in a distribution to which Subsection (c1) of this Section applies) acquired before January 1, 1921, the basis for the purpose of ascertaining gain shall be the fair market value of the property at January 1, 1921, or the cost of the property, whichever is greater, and the basis for determining loss shall be the cost of the property in all cases if such cost is known or determinable. Otherwise, the basis shall be the fair market value of the property at January 1, 1921. The basis so determined shall be adjusted for capital additions or losses applicable to the property and for depreciation, amortization and depletion allowed or allowable."

Sec. 2.  Section 105‑144 of the General Statutes is hereby further amended by inserting in said Section, immediately following Subsection (a) of said Section, a new Subsection, designated as Subsection (a1), which shall read as follows:

"(a1)     Property received in liquidation under Subsection (c1), if

(1)        property was acquired by a shareholder in the liquidation of a corporation in cancellation or redemption of stock, and

(2)        with respect to such acquisition

(A)       gain was realized, but

(B)       as the result of an election made by the shareholder under Subsection (c1) of this Section, the extent to which gain was recognized was determined under Subsection (c1) of this Section,

then the basis shall be the same as the basis of such stock cancelled or redeemed in the liquidation, decreased in the amount of any money received by the shareholder, and increased in the amount of gain recognized to him."

Sec. 3.  Subsection (b) of Section 105‑144 of the General Statutes of North Carolina is hereby amended so that the same shall hereafter read as follows:

"(b)      Except as hereinafter provided in Subsection (c) or in Subsection (c1) of this Section, the final distribution to the taxpayer of the assets of a corporation shall be treated as a sale of the stock or securities of the corporation owned by him, and the gain or loss shall be computed accordingly."

Sec. 4.  Section 105‑144 of the General Statutes is hereby further amended by inserting in said Section, immediately following Subsection (c) thereof, a new Subsection, designated Subsection (c1), which shall read as follows:

"(c1)      (1)      General Rule. In the case of property distributed in complete liquidation of a corporation, if

(A)       the liquidation is made in pursuance of a plan of liquidation adopted on or after the effective date of this Section; and

(B)       the distribution is in complete cancellation or redemption of all the stock, and the transfer of all the property under the liquidation occurs within some one calendar month,

then in the case of each qualified electing shareholder (as defined in Subparagraph (3) gain on the shares owned by him at the time of the adoption of the plan of liquidation shall be recognized only to the extent provided in Subparagraphs (5) and (6)."

(2)        Excluded Corporation. For purposes of this Section, the term "excluded corporation" means a corporation which at any time between the effective date of this Section and the date of the adoption of the plan of liquidation, both dates inclusive, was the owner of stock possessing fifty per cent (50%) or more of the total combined voting power of all classes of stock entitled to vote on the adoption of such plan.

(3)        Qualified Electing Shareholders. For purposes of this Section, the term "qualified electing shareholder" means a shareholder (other than an excluded corporation) of any class of stock (whether or not entitled to vote on the adoption of the plan of liquidation) who is a shareholder at the time of the adoption of such plan, and whose written election to have the benefits of Subparagraph (1) has been made and filed in accordance with Subparagraph (4), but

(A)       in the case of a shareholder other than a corporation, only if written elections have been so filed by shareholders (other than corporations) who at the time of the adoption of the plan of liquidation are owners of stock possessing at least eighty per cent (80%) of the total combined voting power (exclusive of voting power possessed by stock owned by corporations) of all classes of stock entitled to vote on the adoption of such plan of liquidation; or

(B)       in the case of a shareholder which is a corporation, only if written elections have been so filed by corporate shareholders (other than an excluded corporation) which at the time of the adoption of such plan of liquidation are owners of stock possessing at least eighty per cent (80%) of the total combined voting power (exclusive of voting power possessed by stock owned by an excluded corporation and by shareholders who are not corporations) of all classes of stock entitled to vote on the adoption of such plan of liquidation.

(4)        Making and Filing of Elections. The written elections referred to in Subparagraph (3) shall be deemed to have been made and filed if, and only if, such written elections were duly made and filed for Federal income tax purposes in conformity with the provisions of Section 333 of the 1954 Internal Revenue Code and the regulations thereunder.

(5)        Noncorporate Shareholders. In the case of a qualified electing shareholder other than a corporation

(A)       there shall be recognized, and treated as ordinary income, so much of the gain as is not in excess of his ratable share of the earnings and profits of the corporation accumulated after January 1, 1921, such earnings and profits to be determined as of the close of the month in which the transfer in liquidation occurred under Subparagraph (1)(B), but without diminution by reason of distributions made during such month; but by including in the computation thereof all amounts accrued up to the date on which the transfer of all the property under the liquidation is completed; and

(B)       there shall be recognized and treated as gain so much of the remainder of the gain as is not in excess of the amount by which the value of that portion of the assets received by him which consists of money, or of stock or securities acquired by the corporation after the effective date of this Section, exceeds his ratable share of such earnings and profits.

(6)        Corporate Shareholders. In the case of a qualified electing shareholder which is a corporation, the gain shall be recognized only to the extent of the greater of the two following:

(A)       the portion of the assets received by it which consists of money, or of stock or securities acquired by the liquidating corporation after the effective date of this Section; or

(B)       its ratable share of the earnings and profits of the liquidating corporation accumulated after January 1, 1921, such earnings and profits to be determined as of the close of the month in which the transfer in liquidation occurred under Subparagraph (1)(B), but without diminution by reason of distributions made during such month; but by including in the computation thereof all amounts accrued up to the date on which the transfer of all property under the liquidation is completed."

Sec. 5.  All laws and clauses of laws in conflict with this Act are hereby repealed.

Sec. 6.  This Act shall be in full force and effect from and after its ratification.

In the General Assembly read three times and ratified, this the 21st day of June, 1961.