Par. 2. Section 1.305-1 is amended by: 1. Revising paragraphs (b)(3) and (d). 2. Adding paragraph (e). The revisions and addition read as follows:
* * * * *
(b) * * *
(3) For rules determining the amount of the distribution for certain transactions, such as periodic redemptions or applicable adjustments (as defined in § 1.305-7(a)) of rights to acquire stock that are treated as distributions under section 305(b) and (c), see § 1.305-7 and Examples 6, 7, 8, 9, and 15 of § 1.305-3(e).
* * * * *
(d) Definitions. For purposes of section 305, this section, and §§ 1.305-2 through 1.305-7:
(1) Stock. The term stock means actual stock or a right to acquire stock.
(2) Actual stock. The term actual stock means stock issued by a corporation, excluding rights to acquire stock as defined in paragraph (d)(3) of this section.
(3) Right to acquire stock. The term right to acquire stock means—
(i) A right of a holder of a convertible instrument (including a debt instrument that is convertible into shares of stock and stock that is convertible into shares of another class of stock) to convert the instrument into one or more shares of stock of the corporation issuing the instrument;
(ii) A warrant, subscription right, stock right, or other option to acquire shares of stock of the corporation issuing the instrument;
(iii) A right to acquire stock of the corporation issuing such right similar to the rights described in paragraphs (d)(3)(i) and (ii) of this section; and
(iv) A right to receive an amount of cash or other property determined in whole or in part by reference to the value of a specified number of shares of stock (whether or not in lieu of such stock) of the corporation issuing the right.
(4) Shareholder. The term shareholder means a holder of actual stock or a holder of a right to acquire stock.
(5) Actual shareholder. The term actual shareholder means a holder of actual stock.
(6) Deemed shareholder. The term deemed shareholder means a holder of a right to acquire stock.
(7) Deemed distribution. The term deemed distribution means a transaction or event, other than an actual distribution of cash or property, that constitutes a distribution under section 305(b) and (c). An applicable adjustment to a right to acquire stock is not and does not result in a deemed distribution if either—
(i) The right to acquire stock is a nonqualified stock option without a readily ascertainable fair market value ( see section 83(e) and § 1.83-7), or
(ii) Section 83(a) applies to the right to acquire stock or the stock to which the right relates or the stock is subject to a substantial risk of forfeiture, and the holder of the right has not made an election under section 83(b).
(e) Effective/applicability date. Paragraphs (b)(3) and (d) of this section apply to deemed distributions under section 305(b) and (c) occurring on or after the date of publication of the Treasury decision adopting these rules as final regulations in the Federal Register . A taxpayer, however, may rely on these proposed regulations for deemed distributions under section 305(c) that occur prior to such date. For purposes of determining the amount of a deemed distribution to a deemed shareholder occurring prior to such date, a taxpayer may determine the amount of the deemed distribution by treating such distribution either as a distribution of a right to acquire stock or as a distribution of the actual stock to which the right relates.