¹However, in deciding whether the PII tax applies, liquidating distributions are taken into account in determining whether the corporation has E&P at the close of the tax year; thus, generally, the PII tax will not apply in the liquidation year.

²See Regs. Secs. 1.338-3(c)(1)(i) and 1.1361-4(b)(4).

³Adapted from Regs. Sec. 1.338(h)(10)-1(e), Example 10.

⁴See Regs. Sec. 1.338-4. Because T is an S corporation, the first addend in the ADSP definition is simplified as indicated. For purposes of this example, the stock sold by A and B represents 80% of the value of all T stock (i.e., no control premium).

⁵This is $80,000 (amount realized by shareholder on stock sale)/0.80 (fraction, by value, of target stock purchased).

⁶This is A's and B's selling expenses.

⁷This is Old T's liabilities; see Regs. Sec. 1.338-4(d).

⁸See Regs. Sec. 1.338-5. Because T is an S corporation, the AGUB definition is simplified. For example, there is no nonrecently purchased T stock (Sec. 338(b)(6)(B)); T's S election previously would have terminated if and when P had acquired such stock. For purposes of this example, the stock A and B sold represents 80% of the value of all T stock.

⁹This is $80,000 (P's basis in stock purchased)/0.80 (fraction, by value, of target stock purchased).

¹⁰This is P's capitalized acquisition cost.

¹¹This is New T's liabilities; see Regs. Sec. 1.338-5(e).

¹²The current regulations "de-link" ADSP and AGUB; the two amounts are equal in the example by coincidence.

¹³The $75,000 amount is a plug figure ($110,000 ADSP 2 $25,000 note 2 $10,000 in liabilities) and is deemed to be cash; see Regs. Sec. 1.338(h)(10)-1(d)(8)(i).