II 109th CONGRESS 1st Session S. 1327 IN THE SENATE OF THE UNITED STATES June 29, 2005 Mr. Lott (for himself and Mr. Baucus) introduced the following bill; which was read twice and referred to the Committee on Finance A BILL To amend the Internal Revenue Code of 1986 to modify the active business definition under section 355.

1.

Modification of active business definition under section 355

(a)

In general

Section 355(b) of the Internal Revenue Code of 1986 (defining active conduct of a trade or business) is amended by adding at the end the following new paragraph: (3)

Special rules relating to active business requirement

(A)

In general

For purposes of determining whether a corporation meets the requirement of paragraph (2)(A), all members of such corporation’s separate affiliated group shall be treated as one corporation. For purposes of the preceding sentence, a corporation’s separate affiliated group is the affiliated group which would be determined under section 1504(a) if such corporation were the common parent and section 1504(b) did not apply. (B)

Control

For purposes of paragraph (2)(D), all distributee corporations which are members of the same affiliated group (as defined in section 1504(a) without regard to section 1504(b)) shall be treated as one distributee corporation. . (b)

Conforming amendments

(1)Subparagraph (A) of section 355(b)(2) of the Internal Revenue Code of 1986 is amended to read as follows: (A)it is engaged in the active conduct of a trade or business, . (2)Section 355(b)(2) of such Code is amended by striking the last sentence. (c)

Effective date

(1)

In general

The amendments made by this section shall apply— (A)to distributions after the date of the enactment of this Act, and (B)for purposes of determining the continued qualification under section 355(b)(2)(A) of the Internal Revenue Code of 1986 (as amended by subsection (b)(1)) of distributions made before such date, as a result of an acquisition, disposition, or other restructuring after such date. (2)

Transition rule

The amendments made by this section shall not apply to any distribution pursuant to a transaction which is— (A)made pursuant to an agreement which was binding on such date of enactment and at all times thereafter, (B)described in a ruling request submitted to the Internal Revenue Service on or before such date, or (C)described on or before such date in a public announcement or in a filing with the Securities and Exchange Commission. (3)

Election to have amendments apply

Paragraph (2) shall not apply if the distributing corporation elects not to have such paragraph apply to distributions of such corporation. Any such election, once made, shall be irrevocable.