[Code of Federal Regulations]
[Title 26, Volume 11]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.1248-6]

[Page 406-407]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.1248-6  Sale or exchange of stock in certain domestic corporations.

    (a) General rule. If a United States person recognizes gain upon the 
sale or exchange of a share (or block) of stock of a domestic 
corporation which was formed or availed of principally for the holding, 
directly or indirectly, of stock of one or more foreign corporations, 
and if the conditions of paragraph (a)(2) of Sec. 1.1248-1 would be met 
by such person in respect of the share (or block) if the domestic 
corporation were a foreign corporation, then section 1248 shall apply in 
respect of such gain in accordance with the rules provided in paragraph 
(b) of this section.
    (b) Application. (1) The gain referred to in paragraph (a) of this 
section shall be included in the gross income of the United States 
person as a dividend under section 1248(a) to the extent of the earnings 
and profits attributable under Sec. 1.1248-2 or Sec. 1.1248-3, 
whichever is applicable, to the share (or block), computed, however, in 
accordance with the following rules:
    (i) The domestic corporation shall be treated as if it were a first 
tier foreign corporation;
    (ii) If, after the application of subdivision (i) of this 
subparagraph, the provisions of paragraph (a)(3) of Sec. 1.1248-2 or 
paragraph (f) of Sec. 1.1248-3 (as the case may be) would apply in 
respect of a foreign corporation the stock of which is owned (within the 
meaning of section 958(a)) by the domestic corporation treated as the 
first tier corporation, such foreign corporation shall be considered a 
lower tier corporation;
    (iii) Except to the extent provided in subdivision (iv) of this 
subparagraph, the earnings and profits of the domestic corporation 
treated as the first tier corporation accumulated for a taxable year, as 
computed under paragraph (d) of Sec. 1.1248-2 or paragraph (b) of Sec. 
1.1248-3 (as the case may be), shall be considered to be zero; and
    (iv) If, during a taxable year, a domestic corporation treated as 
the first tier corporation realizes gain upon the sale or exchange of 
stock in a foreign corporation, and solely by reason of the application 
of section 337 (relating to certain liquidations) the gain was not 
recognized, then the earnings and profits of such domestic corporation 
accumulated for the taxable year, as computed under paragraph (d) of 
Sec. 1.1248-2 or paragraph (b) of Sec. 1.1248-3 (as the case may be), 
shall be considered to be an amount equal to the portion of such gain 
realized during the taxable year which, if section 337 had not applied, 
would have been treated as a dividend under section 1248(a).
    (2) If the person selling or exchanging the stock in the domestic 
corporation is an individual, the limitation on tax attributable to the 
amount included in his gross income as a dividend under

[[Page 407]]

subparagraph (1) of this paragraph shall be determined, in accordance 
with the principles of paragraph (f) of Sec. 1.1248-4, by treating the 
domestic corporation as a first tier corporation.
    (3)(i) If the earnings and profits of the foreign corporation or 
corporations (or of the domestic corporation treated as a first tier 
corporation) to be taken into account under subparagraph (1) of this 
paragraph are not established in the manner provided in paragraph (a)(1) 
of Sec. 1.1248-7, all of the gain from the sale or exchange of the 
share (or block) of the domestic corporation shall be treated as a 
dividend.
    (ii) To the extent that the person does not establish, in the manner 
provided in paragraph (c) of Sec. 1.1248-7, the foreign taxes paid by 
such foreign corporation or corporations to be taken into account for 
purposes of computing the limitation on tax attributable to a share, 
such foreign taxes shall not be taken into account for purposes of such 
computation.
    (c) Corporation formed or availed of principally for holding stock 
of foreign corporations. Whether or not a domestic corporation is formed 
or availed of principally for the holding, directly or indirectly, of 
stock of one or more foreign corporations shall be determined on the 
basis of all the facts and circumstances of each particular case.

[T.D. 6779, 29 FR 18143, Dec. 22, 1964]