[Code of Federal Regulations]
[Title 26, Volume 10]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.997-1]

[Page 734-735]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.997-1  Special rules for subchapter C of the Code.

    (a) For purposes of applying the provisions of sections 301 through 
395 of the Code, any distribution in property to a corporation by a 
DISC, or former DISC, which is made out of previously taxed income or 
accumulated DISC income shall be treated as a distribution in the same 
amount as if such distribution of property were made to an individual, 
and have a basis, in the hands of the recipient corporation, equal to 
such amount treated as having been distributed.
    (b) This section may be illustrated by the following example:

    Example. X Corporation is the sole shareholder of Y Corporation 
which is a DISC. Y makes an actual distribution of property to

[[Page 735]]

X with respect to X's stock in Y. The property has a basis of $50 and a 
fair market value of $100. The distribution is treated as made out of 
accumulated DISC income under section 996(a) and is taxable as a 
dividend under section 301(c)(1). Even though X is a corporation, the 
amount of the distribution is $100 notwithstanding the provisions of 
section 301(b)(1)(B) and the basis the property in X's hands is $100 
notwithstanding the provisions of section 301(d)(2).

[T.D. 7324, 39 FR 35125, Sept. 30 1974]