### Question
How is the term qualified replacement property defined?


### Answer
The term **qualified replacement property** is defined in *26 U.S.C. § 1042* as the following:

> any security issued by a domestic operating corporation which—


(i) did not, for the taxable year preceding the taxable year in which such security was purchased, have passive investment income (as defined in section 1362(d)(3)(C)) in excess of 25 percent of the gross receipts of such corporation for such preceding taxable year, and


(ii) is not the corporation which issued the qualified securities which such security is replacing or a member of the same controlled group of corporations (within the meaning of section 1563(a)(1)) as such corporation

#### Citation:
  - *26 U.S.C. § 1042*
  - Heading: **Subtitle A-Income Taxes > CHAPTER 1-NORMAL TAXES AND SURTAXES > Subchapter O-Gain or Loss on Disposition of Property > PART III-COMMON NONTAXABLE EXCHANGES**

