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 ----------------------------------------------------------------------------------------------------------------                                                                                                    (d)_Increase                                                              (a)_Year   (b)_Increase                (decrease)                                                                end       (decrease)    (c)_Shares    per share                           Year                             accumulated       in       outstanding   (column (b)                                                            DISC income   accumulated                divided by                                                                          DISC income                column (c))----------------------------------------------------------------------------------------------------------------1973......................................................         $80           $80           20         $4.001974......................................................          50          (30)           20        (1.50)1975......................................................          80            30           20          1.501976......................................................         100            20       \1\ 25           .801977......................................................         140            40           30          1.33                                                           -----------------------------------------------------(1) Total increase in accumulated DISC income for each      ...........  ............  ...........         6.13 share disposed of (sum of amounts in column (d)).........Multiply by number of shares disposed of..................  ...........  ............  ...........           10                                                           -----------------------------------------------------(2) Total amount of accumulated DISC income attributable    ...........  ............  ...........        61.30 to A's shares disposed of................................(3) A's gain..............................................  ...........  ............  ...........       120.00(4) Portion of A's gain taxable as a dividend (lower of     ...........  ............  ...........        61.30 lines (2) and (3)).......................................(5) Portion of A's gain taxable as long-term capital gain   ...........  ............  ...........        58.70 (line (3) minus line (4))................................----------------------------------------------------------------------------------------------------------------\1\ Under subparagraph (3)(ii) of this paragraph, the aggregate fractional amounts of the 10 shares issued on  July 1, 1976, is 5 shares, i.e., 10 shares, multiplied by (183 days/366 days). Thus, the number of shares  deemed outstanding for 1976 is 25 shares, i.e., 20 shares plus 5 shares.

Example 2.  Assume the same facts as in example 1, except that A sells his 10 shares to D on July 1, 1977. Under subparagraph (3)(iii) of this paragraph, the amount of increase in accumulated DISC income for 1977 which is attributable to each share disposed of is limited to $.67, i.e., $1.33 multiplied by 182 days/365 days. Therefore, the sum of the yearly increases (and decreases) in accumulated DISC income for each share is reduced by $.66 (i.e., $1.33 minus $.67). The total increase in accumulated DISC income for each share disposed of is $5.47 (i.e., $6.13 minus $.66). Under these facts, A would include in his gross income for 1977 a dividend of $54.70 and long-term capital gain of $65.30 determined as follows:

   (1) Total increase in accumulated DISC income for each             $5.47 share disposed of.........................................Multiplied by number of shares disposed of.................           10                                                            ------------(2) Total amount of accumulated DISC income attributable of        54.70 to all shares disposed of.................................(3) A's gain...............................................       120.00(4) Portion of A's gain taxable as a dividend (lower of            54.70 lines (2) and (3))........................................(5) Portion of A's gain taxable as long-term capital gain          65.30 (line (3) minus line (4))................................. 

[T.D. 7324, 39 FR 35112, Sept. 30, 1974, as amended by T.D. 7854, 47 FR 51741, Nov. 17, 1982]

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