CHAPTER 554

An Act to amend the Code of Virginia by adding a section numbered
58-86.1:5, so as to provide for an election as to recognition of gain in
certain liquidations of corporations.

[(S 355]
Approved April 5, 1966

Be it enacted by the General Assembly of Virginia:

1. That the Code of Virginia be amended by adding a section numbered
58-86.1:5, as follows:

§ 58-86.1:5. (a) General Rule.—In the case of property distributed
in complete liquidation of a corporation, pursuant to an adopted plan of
liquidation, if 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 (1) calendar month, then, in the case of each
qualified electing shareholder (as defined in subsection (c) ), 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 subsections (e) and (f).

(b) Excluded Corporation.—For purposes of this section, the term
“excluded corporation” means a corporation which at any time between
inuary 1, 1954, and the date of the adoption of the plan of liquidation,
th dates inclusive, was the owner of stock possessing 50 percent or more
‘the total combined voting power of all classes of stock entitled to vote
1) the adoption of such plan.

(c) Qualified Electing Shareholders.—For purposes of this section,
e term “qualified electing shareholder’ means a shareholder (other than
1 excluded corporation) of any class of stock (whether or not entitled to
tte on the adoption of the plan of liquidation) who is a shareholder at the
me of the adoption of such plan, and whose written election to have the
nefits of subsection (a) has been made and filed in accordance with
bsection (d), but—

(1) in the case of a shareholder other than a corporation, only if
written elections have been so filed by shareholders (other than corpora-
tions) who at the time of the adoption of the plan of liquidation are
owners of stock possessing at least 80 percent 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

(2) 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 80 percent of
the total combined voting power (exclusive of voting power po
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.

(d) Making and Filing of Elections.—The written elections referred
in subsection (c) must be made and filed with the Commissioner within
) days after the date of the adoption of the plan of liquidation.
(e) Non-Corporate Shareholders.—In the case of a qualified electing
areholder other than a corporation—

(1) there shall be recognized, and treated as gain, so much of the
gain as is not in excess of his ratable share of the earnings and profits of
the corporation, such earnings and profits to be determined as of the
close of the month in which the transfer in liquidation occurred under
subsection (a) (2), 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 prop-
erty under the liquidation is completed; and

(2) 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 Decem-
ber 31, 1953, exceeds his ratable share of such earnings and profits.

(f) Distributions in Liquidation .—Distributions in liquidation are
s oO within the meaning of the word “dividend” as used in

(g) Corporate Shareholders.—In the case of a qualified electing
areholder which is a corporation, the gain shall be recognized only to
e extent of the greater of the two following—

(1) the portion of the assets received by it which consists of
money, or of stock or securities acquired by the liquidating corporation
after December 31, 1953; or

(2) its ratable share of the earnings and profits of the liquidating
corporation, such earnings and profits to be determined as of the close of
the month in which the transfer in liquidation occurred under subsection
(a) (2), 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 i is completed.
(h) Spectal Rule.—

(1) Liquidations Before January 1, 1967.—In the case of a liquida-
tion occurring before January 1, 1967, of a corporation referred to in
paragraph (2), the date “December 31, 19538” referred to in subsections
(e) 2, and (g) (1) shall be treated as if such date were “December

MD) Corporations Referred To.—For purposes of paragraph (1),
a corporation referred to in this paragraph is a corporation which, for
at least one of the two years ending in 1962 and 1963, was not a personal
holding company under section 542 of the Internal Revenue Code of 1954,
as amended, but would have been a personal holding company under
section 542 of the Internal Revenue Code of 1954, as amended, for such
taxable year if the law applicable for the first taxable year beginning
after December 31, 1963, had been applicable to such taxable year.

(3) Mistake as to Applicability of Subsection.—An election made
under this section by a qualified electing shareholder of a corporation in
which such shareholder states that such election is made on the assump-
tion that such corporation is a corporation referred to in paragraph (2)
shall have no force or effect if it is determined that the corporation is not
a corporation referred to in paragraph (2).

(i) Basis of Property Received.—Property acquired by a share-
Ider in the liquidation of a corporation under this section shall have a
sis in the hands of such shareholder equal to the basis of the stock
ncelled or redeemed by such shareholder in the liquidation, decreased in
e amount of any money received by the shareholder and increased in the
nount of gain recognized to him.

(j) When Section Effective.—This section shall be in force for tax-
le years beginning after December 31, 1965, and for fiscal years ending
1966 with respect to liquidations made after December 81, 1965.