[Code of Federal Regulations]
[Title 26, Volume 4]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.341-3]

[Page 156]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.341-3  Presumptions.

    (a) Unless shown to the contrary a corporation shall be considered 
to be a collapsible corporation if at the time of the transactions 
described in Sec. 1.341-1 the fair market value of the section 341 
assets held by it constitutes 50 percent or more of the fair market 
value of its total assets and the fair market value of the section 341 
assets is 120 percent or more of the adjusted basis of such assets. In 
determining the fair market value of the total assets, cash, obligations 
which are capital assets in the hands of the corporation, governmental 
obligations, and stock in any other corporation shall not be taken into 
consideration. The failure of a corporation to meet the requirements of 
this paragraph, shall not give rise to the presumption that the 
corporation was not a collapsible corporation.
    (b) The following example will illustrate the application of this 
section:

    Example A corporation, filing its income tax returns on the accrual 
basis, on July 31, 1955, owned assets with the following fair market 
values: Cash, $175,000; note receivable held for investment, $130,000; 
stocks of other corporations, $545,000; rents receivable, $15,000; and a 
building constructed by the corporation in 1953 and held thereafter as 
rental property, $750,000. The adjusted basis of the building on that 
date was $600,000. The only debt outstanding was a $500,000 mortgage on 
the building. On July 31, 1955, the corporation liquidated and 
distributed all of its assets to its shareholders. In computing whether 
the fair market value of the section 341 assets (only the building) is 
50 percent or more of the fair market value of the total assets, the 
cash, note receivable, and stocks of other corporations are not taken 
into account in determining the value of the total assets, with the 
result that the fair market value of the total assets was $765,000 
($750,000 (building) plus $15,000 rents receivable). Therefore, the 
value of the building is 98 percent of the total assets ($750,000/
$765,000). The value of the building is also 125 percent of the adjusted 
basis of the building ($750,000/$600,000). In view of the above facts, 
there arises a presumption that the corporation is a collapsible 
corporation.