102 STAT. 3394 PUBLIC LAW 100-647— NOV. 10, 1988

graph (5) and redesignating paragraphs (6) and (7) as para-
graphs (5) and (6), respectively.

(2) Section 1059(dX5) of the 1986 Code (defining dividend
announcement date), as redesignated by paragraph (1), is
amended by inserting "amount or ' before payment".

(3) Section 1059(dX6) of the 1986 Code (relating to exception
where stock held during entire existence of corporation), as
redesignated by paragraph (1), is amended to read as follows:

"(6) EXCEPTION WHERE STOCK HELD DURING ENTIRE EXISTENCE
OF CORPORATION.—

"(A) IN GENERAL,— Subsection (a) shall not apply to any
extraordinary dividend with respect to any share of stock of
a corporation if—

"(i) such stock was held by the taxpayer during the
entire period such corporation was in existence, and
"(ii) except as provided in regulations, no earnings
and profits of such corporation were attributable to
transfers of property from (or earnings and profits of) a
corporation which is not a qualified corporation.
"(B) QUALIFIED CORPORATION. — For purposes of subpara-
graph (A), the term 'qualified corporation' means any cor-
poration (including a predecessor corporation) —

"(i) with respect to which the taxpayer holds directly
or indirectly during the entire period of such corpora-
tion's existence at least the same ownership interest as
the taxpayer holds in the corporation distributing the
extraordinary dividend, and
"(ii) which has no earnings and profits —
"(I) which were earned by, or
"(II) which are attributable to gain on property
which accrued during a period the corporation
holding the property was,
a corporation not described in clause (i).
"(C) APPLICATION OF PARAGRAPH.— This paragraph shall
not apply to any extraordinary dividend to the extent such
application is inconsistent with the purposes of this

(4) Paragraph (1) of section 1059(e) of the 1986 Code (relating
to treatment of partial liquidation) is amended by striking out
"for purposes of this section (without regard to the holding
period of the stock)" and inserting in lieu thereof: "to which
paragraphs (1) and (2) of subsection (a) apply without regard to
the period the taxpayer held such stock".

(5) Paragraph (2) of section 1059(e) of the 1986 Code (relating
to qualifying dividends) is amended to read as follows:

"(2) QUALIFYING DIVIDENDS. —

' (A) IN GENERAL.— Except as provided in regulations, the
term 'extraordinary dividend' does not include any qualify-
ing dividend (within the meaning of section 243).

'(B) EXCEPTION .— Subparagraph (A) shall not apply to
any portion of a dividend which is attributable to earnings
and profits which—

"(i) were earned by a corporation during a period it
was not a member of the affiliated group, or

"(ii) are attributable to gain on property which ac-
crued during a period the corporation holding the prop-
erty was not a member of the affiliated group."