-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
-HEAD-
SUBCHAPTER C - CORPORATE DISTRIBUTIONS AND ADJUSTMENTS
-MISC1-
Part
I. Distributions by corporations.
II. Corporate liquidations.
III. Corporate organizations and reorganizations.
[IV. Repealed.]
V. Carryovers.
VI. Treatment of certain corporate interests as stock or
indebtedness.
[VII. Repealed.]
AMENDMENTS
1990 - Pub. L. 101-508, title XI, Sec. 11801(b)(5), Nov. 5, 1990,
104 Stat. 1388-522, struck out item for part IV "Insolvency
reorganizations".
1988 - Pub. L. 100-647, title I, Sec. 1006(e)(8)(C), Nov. 10,
1988, 102 Stat. 3401, struck out item for part VII "Miscellaneous
corporate provisions".
1984 - Pub. L. 98-369, div. A, title I, Sec. 75(d), July 18,
1984, 98 Stat. 595, added item for part VII.
1976 - Pub. L. 94-455, title XIX, Sec. 1901(b)(15), Oct. 4, 1976,
90 Stat. 1796, struck out item for part VII "Effective date of
subchapter C."
1969 - Pub. L. 91-172, title IV, Sec. 415(b), Dec. 30, 1969, 83
Stat. 614, redesignated item for part VI as VII and added part VI.
-SECREF-
SUBCHAPTER REFERRED TO IN OTHER SECTIONS
This subchapter is referred to in sections 26, 56, 447, 485, 535,
997, 1011, 1012, 1081, 1371, 1375 of this title.
-End-
-CITE-
26 USC PART I - DISTRIBUTIONS BY CORPORATIONS 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART I - DISTRIBUTIONS BY CORPORATIONS
-HEAD-
PART I - DISTRIBUTIONS BY CORPORATIONS
-MISC1-
Subpart
A. Effects on recipients.
B. Effects on corporation.
C. Definitions; constructive ownership of stock.
-End-
-CITE-
26 USC Subpart A - Effects on Recipients 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART I - DISTRIBUTIONS BY CORPORATIONS
Subpart A - Effects on Recipients
-HEAD-
SUBPART A - EFFECTS ON RECIPIENTS
-MISC1-
Sec.
301. Distributions of property.
302. Distributions in redemption of stock.
303. Distributions in redemption of stock to pay death
taxes.
304. Redemption through use of related corporations.
305. Distributions of stock and stock rights.
306. Dispositions of certain stock.
307. Basis of stock and stock rights acquired in
distributions.
-SECREF-
SUBPART REFERRED TO IN OTHER SECTIONS
This subpart is referred to in sections 311, 351 of this title.
-End-
-CITE-
26 USC Sec. 301 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART I - DISTRIBUTIONS BY CORPORATIONS
Subpart A - Effects on Recipients
-HEAD-
Sec. 301. Distributions of property
-STATUTE-
(a) In general
Except as otherwise provided in this chapter, a distribution of
property (as defined in section 317(a)) made by a corporation to a
shareholder with respect to its stock shall be treated in the
manner provided in subsection (c).
(b) Amount distributed
(1) General rule
For purposes of this section, the amount of any distribution
shall be the amount of money received, plus the fair market value
of the other property received.
(2) Reduction for liabilities
The amount of any distribution determined under paragraph (1)
shall be reduced (but not below zero) by -
(A) the amount of any liability of the corporation assumed by
the shareholder in connection with the distribution, and
(B) the amount of any liability to which the property
received by the shareholder is subject immediately before, and
immediately after, the distribution.
(3) Determination of fair market value
For purposes of this section, fair market value shall be
determined as of the date of the distribution.
(c) Amount taxable
In the case of a distribution to which subsection (a) applies -
(1) Amount constituting dividend
That portion of the distribution which is a dividend (as
defined in section 316) shall be included in gross income.
(2) Amount applied against basis
That portion of the distribution which is not a dividend shall
be applied against and reduce the adjusted basis of the stock.
(3) Amount in excess of basis
(A) In general
Except as provided in subparagraph (B), that portion of the
distribution which is not a dividend, to the extent that it
exceeds the adjusted basis of the stock, shall be treated as
gain from the sale or exchange of property.
(B) Distributions out of increase in value accrued before March
1, 1913
That portion of the distribution which is not a dividend, to
the extent that it exceeds the adjusted basis of the stock and
to the extent that it is out of increase in value accrued
before March 1, 1913, shall be exempt from tax.
(d) Basis
The basis of property received in a distribution to which
subsection (a) applies shall be the fair market value of such
property.
(e) Special rule for certain distributions received by 20 percent
corporate shareholder
(1) In general
Except to the extent otherwise provided in regulations, solely
for purposes of determining the taxable income of any 20 percent
corporate shareholder (and its adjusted basis in the stock of the
distributing corporation), section 312 shall be applied with
respect to the distributing corporation as if it did not contain
subsections (k) and (n) thereof.
(2) 20 percent corporate shareholder
For purposes of this subsection, the term "20 percent corporate
shareholder" means, with respect to any distribution, any
corporation which owns (directly or through the application of
section 318) -
(A) stock in the corporation making the distribution
possessing at least 20 percent of the total combined voting
power of all classes of stock entitled to vote, or
(B) at least 20 percent of the total value of all stock of
the distributing corporation (except nonvoting stock which is
limited and preferred as to dividends),
but only if, but for this subsection, the distributee corporation
would be entitled to a deduction under section 243, 244, or 245
with respect to such distribution.
(3) Application of section 312(n)(7) not affected
The reference in paragraph (1) to subsection (n) of section 312
shall be treated as not including a reference to paragraph (7) of
such subsection.
(4) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this
subsection.
(f) Special rules
(1) For distributions in redemption of stock, see section
302.
(2) For distributions in complete liquidation, see part II
(sec. 331 and following).
(3) For distributions in corporate organizations and
reorganizations, see part III (sec. 351 and following).
(4) For taxation of dividends received by individuals at
capital gain rates, see section 1(h)(11).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 84; Pub. L. 87-403, Sec. 2(a),
Feb. 2, 1962, 76 Stat. 5; Pub. L. 87-834, Secs. 5(a), (b),
13(f)(2), Oct. 16, 1962, 76 Stat. 977, 1035; Pub. L. 88-272, title
II, Sec. 231(b)(2), Feb. 26, 1964, 78 Stat. 105; Pub. L. 88-484,
Sec. 1(b)(1), Aug. 22, 1964, 78 Stat. 597; Pub. L. 89-570, Sec.
1(b)(2), Sept. 12, 1966, 80 Stat. 762; Pub. L. 89-809, title I,
Sec. 104(f), Nov. 13, 1966, 80 Stat. 1559; Pub. L. 91-172, title
II, Sec. 211(b)(1), (2), title IX, Sec. 905(b)(2), Dec. 30, 1969,
83 Stat. 570, 714; Pub. L. 92-178, title III, Sec. 312(a), Dec. 10,
1971, 85 Stat. 526; Pub. L. 94-455, title II, Sec. 205(c)(1)(B),
(C), title XIX, Secs. 1901(a)(41), (b)(32)(A), 1906(b)(13)(A), Oct.
4, 1976, 90 Stat. 1535, 1771, 1800, 1834; Pub. L. 95-628, Sec.
3(a), (b), Nov. 10, 1978, 92 Stat. 3627; Pub. L. 98-369, div. A,
title I, Secs. 54(b), 61(d), title VII, Sec. 712(i)(1), July 18,
1984, 98 Stat. 569, 582, 948; Pub. L. 99-514, title VI, Sec.
612(b)(1), title XVIII, Sec. 1804(f)(2)(B), Oct. 22, 1986, 100
Stat. 2250, 2805; Pub. L. 100-203, title X, Sec. 10222(b)(1), Dec.
22, 1987, 101 Stat. 1330-411; Pub. L. 100-647, title I, Sec.
1006(e)(10)-(12), title II, Sec. 2004(j)(3)(B), Nov. 10, 1988, 102
Stat. 3401, 3402, 3605; Pub. L. 108-27, title III, Sec. 302(e)(2),
May 28, 2003, 117 Stat. 763.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 303 of Pub. L. 108-27,
see Effective and Termination Dates of 2003 Amendment note below.
-MISC1-
AMENDMENTS
2003 - Subsec. (f)(4). Pub. L. 108-27, Secs. 302(e)(2), 303,
temporarily added par. (4). See Effective and Termination Dates of
2003 Amendment note below.
1988 - Subsec. (b)(1). Pub. L. 100-647, Sec. 1006(e)(10), amended
par. (1) generally. Prior to amendment, par. (1) contained subpars.
(A) to (D) which provided what the amount of any distribution would
be for noncorporate distributees, corporate distributees, certain
corporate distributees of foreign corporations, and foreign
corporate distributees.
Subsec. (d). Pub. L. 100-647, Sec. 1006(e)(11), amended subsec.
(d) generally. Prior to amendment, subsec. (d) contained pars. (1)
to (4) which provided what the basis of property received would be
for noncorporate distributees, corporate distributees, foreign
corporate distributees, and certain corporate distributees of
foreign corporations.
Subsec. (e). Pub. L. 100-647, Sec. 2004(j)(3)(B), added par. (3)
and redesignated former par. (3) as (4).
Pub. L. 100-647, Sec. 1006(e)(12), redesignated subsec. (f) as
(e) and struck out former subsec. (e) which related to special rule
for holding period of appreciated property distributed to
corporation.
Subsecs. (f), (g). Pub. L. 100-647, Sec. 1006(e)(12),
redesignated subsec. (g) as (f). Former subsec. (f) redesignated
(e).
1987 - Subsec. (f)(1). Pub. L. 100-203 substituted "subsections
(k) and (n)" for "subsection (n)".
1986 - Subsec. (f)(3). Pub. L. 99-514, Sec. 1804(f)(2)(B),
substituted "this subsection" for "this section".
Subsec. (g)(4). Pub. L. 99-514, Sec. 612(b)(1), struck out par.
(4) which provided: "For partial exclusion from gross income of
dividends received by individuals, see section 116."
1984 - Subsec. (e). Pub. L. 98-369, Sec. 54(b), added subsec.
(e). Former subsec. (e) redesignated (f).
Subsec. (e)(2). Pub. L. 98-369, Sec. 712(i)(1), substituted
"complete liquidation" for "partial or complete liquidation" in
subsec. (e)(2), which became subsec. (g)(2).
Subsec. (f). Pub. L. 98-369, Sec. 61(d), added subsec. (f).
Former subsec. (f) redesignated (g).
Pub. L. 98-369, Sec. 54(b), redesignated former subsec. (e) as
(f).
Subsec. (g). Pub. L. 98-369, Secs. 54(b), 61(d), redesignated
former subsec. (e) successively as subsec. (f) and as subsec. (g).
Subsec. (g)(2). Pub. L. 98-369, Sec. 712(i)(1), substituted
"complete liquidation" for "partial or complete liquidation" in
subsec. (e)(2), which became subsec. (g)(2).
1978 - Subsec. (b)(1)(B)(ii). Pub. L. 95-628, Sec. 3(a),
substituted "amount of gain recognized to the distributing
corporation on the distribution" for "amount of gain to the
distributing corporation which is recognized under subsection (b),
(c), or (d) of section 311, under section 341(f), or under section
617(d)(1), 1245(a), 1250(a), 1251(c), 1252(a), or 1254(a)".
Subsec. (d)(2)(B). Pub. L. 95-628, Sec. 3(b), substituted "amount
of gain recognized to the distributing corporation on the
distribution" for "amount of gain to the distributing corporation
which is recognized under subsection (b), (c), or (d) of section
311, under section 341(f), or under section 617(d)(1), 1245(a),
1250(a), 1251(c), 1252(a), or 1254(a)".
1976 - Subsec. (b)(1)(B)(ii). Pub. L. 94-455, Sec. 205(c)(1)(B),
substituted "1252(a), or 1254(a)" for "or 1252(a)".
Subsec. (b)(1)(C). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
Subsec. (d)(2)(B). Pub. L. 94-455, Sec. 205(c)(1)(C), substituted
"1252(a), or 1254(a)" for "or 1252(a)".
Subsec. (e). Pub. L. 94-455, Sec. 1901(a)(41), (b)(32)(A),
redesignated subsec. (g) as (e). Former subsec. (e), which related
to exceptions for certain distributions by personal service
corporations, was struck out.
Subsec. (f). Pub. L. 94-455, Sec. 1901(b)(32)(A), struck out
subsec. (f) which related to special rules for distribution of
antitrust stock to corporations.
Subsec. (g). Pub. L. 94-455, Sec. 1901(b)(32)(A), redesignated
subsec. (g) as (e).
1971 - Subsec. (b)(1)(B). Pub. L. 92-178, Sec. 312(a)(1),
substituted "corporation, unless subparagraph (D) applies" for
"corporation" where first appearing.
Subsec. (b)(1)(D). Pub. L. 92-178, Sec. 312(a)(2), added subpar.
(D).
Subsec. (d)(2). Pub. L. 92-178, Sec. 312(a)(3), substituted
"corporation, unless paragraph (3) applies" for "corporation" where
first appearing.
Subsec. (d)(3), (4). Pub. L. 92-178, Sec. 312(a)(4), added par.
(3) and redesignated former par. (3) as (4).
1969 - Subsec. (b)(1)(B)(ii). Pub. L. 91-172, Secs. 211(b)(1),
905(b)(2), substituted "1250(a), 1251(c), or 1252(a)" for "or
1250(a)" and inserted reference to section 311(a).
Subsec. (d)(2)(B). Pub. L. 91-172, Secs. 211(b)(2), 905(b)(2),
substituted "1250(a), 1251(c), or 1252(a)", for "or 1250(a)" and
inserted reference to section 311(a).
1966 - Subsec. (b)(1)(B)(ii). Pub. L. 89-570 included reference
to section 617(d)(1).
Subsec. (b)(1)(C). Pub. L. 89-809 substituted "gross income which
is effectively connected with the conduct of a trade or business
within the United States" for "gross income from sources within the
United States" in cl. (i), "gross income which is not effectively
connected with the conduct of a trade or business within the United
States" for "gross income from sources without the United States"
in cl. (ii), and inserted text following cl. (ii) setting out the
treatment to be accorded gross income for any period before the
first taxable year beginning after December 31, 1966.
Subsec. (d)(2)(B). Pub. L. 89-570 included reference to section
617(d)(1).
1964 - Subsec. (b). Pub. L. 88-484 included amount of gain
recognized under section 341(f).
Pub. L. 88-272 inserted reference to section 1250(a).
Subsec. (d). Pub. L. 88-484 included amount of gain recognized
under section 341(f).
Pub. L. 88-272 inserted reference to section 1250(a).
1962 - Subsec. (b)(1)(B). Pub. L. 87-834, Sec. 13(f)(2),
substituted "subsection (b) or (c) of section 311 or under section
1245(a)" for "subsection (b) or (c) of section 311".
Subsec. (b)(1)(C). Pub. L. 87-834, Sec. 5(a), added subpar. (C).
Subsec. (d)(2). Pub. L. 87-834, Sec. 13(f)(2), substituted
"subsection (b) or (c) of section 311 or under section 1245(a)" for
"subsection (b) or (c) of section 311".
Subsec. (d)(3). Pub. L. 87-834, Sec. 5(b), added par. (3).
Subsecs. (f), (g). Pub. L. 87-403 added subsec. (f) and
redesignated former subsec. (f) as (g).
EFFECTIVE AND TERMINATION DATES OF 2003 AMENDMENT
Amendment by Pub. L. 108-27 applicable, except as otherwise
provided, to taxable years beginning after Dec. 31, 2002, see
section 302(f) of Pub. L. 108-27, set out as a note under section 1
of this title.
Amendment by Pub. L. 108-27 inapplicable to taxable years
beginning after Dec. 31, 2008, and the Internal Revenue Code of
1986 to be applied and administered to such years as if such
amendment had never been enacted, see section 303 of Pub. L.
108-27, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1006(e)(10)-(12) of Pub. L. 100-647
effective, except as otherwise provided, as if included in the
provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which
such amendment relates, see section 1019(a) of Pub. L. 100-647, set
out as a note under section 1 of this title.
Amendment by section 2004(j)(3)(B) of Pub. L. 100-647 effective,
except as otherwise provided, as if included in the provisions of
the Revenue Act of 1987, Pub. L. 100-203, title X, to which such
amendment relates, see section 2004(u) of Pub. L. 100-647, set out
as a note under section 56 of this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Section 10222(b)(2) of Pub. L. 100-203, as amended by Pub. L.
100-647, title II, Sec. 2004(j)(4), Nov. 10, 1988, 102 Stat. 3605,
provided that:
"(A) In general. - The amendment made by paragraph (1) [amending
this section] shall apply to distributions after December 15, 1987.
For purposes of applying such amendment to any such distribution -
"(i) for purposes of determining earnings and profits, such
amendment shall be deemed to be in effect for all periods whether
before, on, or after December 15, 1987, but
"(ii) such amendment shall not affect the determination of
whether any distribution on or before December 15, 1987, is a
dividend and the amount of any reduction in accumulated earnings
and profits on account of any such distribution.
"(B) Exception. - The amendment made by paragraph (1) shall not
apply for purposes of determining gain or loss on any disposition
of stock after December 15, 1987, and before January 1, 1989, if
such disposition is pursuant to a written binding contract,
governmental order, letter of intent or preliminary agreement, or
stock acquisition agreement, in effect on or before December 15,
1987."
EFFECTIVE DATE OF 1986 AMENDMENT
Section 612(c) of Pub. L. 99-514 provided that: "The amendments
made by this section [amending this section and sections 584, 642,
643, 702, 854, and 857 of this title, repealing section 116 of this
title, and enacting provisions set out as a note under section 584
of this title] shall apply to taxable years beginning after
December 31, 1986."
Amendment by section 1804(f)(2)(B) of Pub. L. 99-514 effective,
except as otherwise provided, as if included in the provisions of
the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such
amendment relates, see section 1881 of Pub. L. 99-514, set out as a
note under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 54(b) of Pub. L. 98-369 applicable to
distributions after July 18, 1984, in taxable years ending after
July 18, 1984, see section 54(d)(2) of Pub. L. 98-369, set out as a
note under section 311 of this title.
Section 61(e)(4) of Pub. L. 98-369 provided that: "The amendment
made by subsection (d) [amending this section] shall apply to
distributions after the date of the enactment of this Act [July 18,
1984] in taxable years ending after such date."
Amendment by section 712(i)(1) of Pub. L. 98-369 effective as if
included in the provision of the Tax Equity and Fiscal
Responsibility Act of 1982, Pub. L. 97-248, to which such amendment
relates, see section 715 of Pub. L. 98-369, set out as a note under
section 31 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Section 3(d) of Pub. L. 95-628 provided that: "The amendments
made by this section [amending this section and section 312 of this
title] shall apply to distributions made after the date of the
enactment of this Act [Nov. 10, 1978]."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 205(c)(1)(B), (C) of Pub. L. 94-455
effective for taxable years ending after Dec. 31, 1975, see section
205(e) of Pub. L. 94-455, set out as an Effective Date note under
section 1254 of this title.
Amendment by section 1901(a)(41), (b)(32)(A) of Pub. L. 94-455
effective for taxable years beginning after Dec. 31, 1976, see
section 1901(d) of Pub. L. 94-455, set out as a note under section
2 of this title.
EFFECTIVE DATE OF 1971 AMENDMENT
Section 312(b) of Pub. L. 92-178 provided that: "The amendments
made by subsection (a) [amending this section] shall apply with
respect to distributions made after November 8, 1971."
EFFECTIVE DATE OF 1969 AMENDMENT
Section 211(c) of Pub. L. 91-172 provided that: "The amendments
made by this section [enacting section 1251 of this title and
amending this section and sections 312, 341, 453, and 751 of this
title] shall apply to taxable years beginning after December 31,
1969."
Amendment by section 905(b)(2) of Pub. L. 91-172 effective with
respect to distributions made after Nov. 30, 1969, see section
905(c) of Pub. L. 91-172, set out as a note under section 311 of
this title.
EFFECTIVE DATE OF 1966 AMENDMENTS
Amendment by Pub. L. 89-809 applicable with respect to taxable
years beginning after Dec. 31, 1966, see section 104(n) of Pub. L.
89-809, set out as a note under section 11 of this title.
Amendment by Pub. L. 89-570 applicable to taxable years ending
after Sept. 12, 1966, but only in respect of expenditures paid or
incurred after such date, see section 3 of Pub. L. 89-570, set out
as an Effective Date note under section 617 of this title.
EFFECTIVE DATE OF 1964 AMENDMENTS
Pub. L. 88-484, Sec. 2, Aug. 22, 1964, 78 Stat. 597, provided
that: "The amendments made by the first section of this Act
[amending this section and sections 312, 341, and 453 of this
title] shall apply with respect to transactions after the date of
the enactment of this Act [Aug. 22, 1964] in taxable years ending
after such date."
Amendment by Pub. L. 88-272 applicable to dispositions after Dec.
31, 1963, in taxable years ending after such date, see section
231(c) of Pub. L. 88-272, set out as an Effective Date note under
section 1250 of this title.
EFFECTIVE DATE OF 1962 AMENDMENTS
Section 5(d) of Pub. L. 87-834 provided that: "The amendments
made by this section [amending this section and section 245 of this
title] shall apply to distributions made after December 31, 1962."
Amendment by section 13(f)(2) of Pub. L. 87-834 applicable to
taxable years beginning after Dec. 31, 1962, see section 13(g) of
Pub. L. 87-834, set out as an Effective Date note under section
1245 of this title.
Section 2(b) of Pub. L. 87-403 provided that: "The amendments
made by this section [amending this section] shall apply only with
respect to distributions made after the date of the enactment of
this Act [Feb. 2, 1962]."
STUDY OF CORPORATE PROVISIONS
Section 634 of Pub. L. 99-514 directed Secretary of the Treasury
or his delegate to conduct a study of proposals to reform the
provisions of subchapter C of chapter 1 of the Internal Revenue
Code of 1986, and not later than Jan. 1, 1988 (due date extended to
Jan. 1, 1992, by Pub. L. 101-508, title XI, Sec. 11831(b), Nov. 5,
1990, 104 Stat. 1388-559), to submit to Committee on Ways and Means
of House of Representatives and Committee on Finance of Senate a
report on the study conducted (together with such recommendations
he deemed advisable).
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 279, 302, 304, 305, 306,
316, 317, 331, 356, 646, 852, 877, 1023, 1059, 1368, 1445, 2107,
2501 of this title.
-End-
-CITE-
26 USC Sec. 302 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART I - DISTRIBUTIONS BY CORPORATIONS
Subpart A - Effects on Recipients
-HEAD-
Sec. 302. Distributions in redemption of stock
-STATUTE-
(a) General rule
If a corporation redeems its stock (within the meaning of section
317(b)), and if paragraph (1), (2), (3), or (4) of subsection (b)
applies, such redemption shall be treated as a distribution in part
or full payment in exchange for the stock.
(b) Redemptions treated as exchanges
(1) Redemptions not equivalent to dividends
Subsection (a) shall apply if the redemption is not essentially
equivalent to a dividend.
(2) Substantially disproportionate redemption of stock
(A) In general
Subsection (a) shall apply if the distribution is
substantially disproportionate with respect to the shareholder.
(B) Limitation
This paragraph shall not apply unless immediately after the
redemption the shareholder owns less than 50 percent of the
total combined voting power of all classes of stock entitled to
vote.
(C) Definitions
For purposes of this paragraph, the distribution is
substantially disproportionate if -
(i) the ratio which the voting stock of the corporation
owned by the shareholder immediately after the redemption
bears to all of the voting stock of the corporation at such
time,
is less than 80 percent of -
(ii) the ratio which the voting stock of the corporation
owned by the shareholder immediately before the redemption
bears to all of the voting stock of the corporation at such
time.
For purposes of this paragraph, no distribution shall be
treated as substantially disproportionate unless the
shareholder's ownership of the common stock of the corporation
(whether voting or nonvoting) after and before redemption also
meets the 80 percent requirement of the preceding sentence. For
purposes of the preceding sentence, if there is more than one
class of common stock, the determinations shall be made by
reference to fair market value.
(D) Series of redemptions
This paragraph shall not apply to any redemption made
pursuant to a plan the purpose or effect of which is a series
of redemptions resulting in a distribution which (in the
aggregate) is not substantially disproportionate with respect
to the shareholder.
(3) Termination of shareholder's interest
Subsection (a) shall apply if the redemption is in complete
redemption of all of the stock of the corporation owned by the
shareholder.
(4) Redemption from noncorporate shareholder in partial
liquidation
Subsection (a) shall apply to a distribution if such
distribution is -
(A) in redemption of stock held by a shareholder who is not a
corporation, and
(B) in partial liquidation of the distributing corporation.
(5) Application of paragraphs
In determining whether a redemption meets the requirements of
paragraph (1), the fact that such redemption fails to meet the
requirements of paragraph (2), (3), or (4) shall not be taken
into account. If a redemption meets the requirements of paragraph
(3) and also the requirements of paragraph (1), (2), or (4), then
so much of subsection (c)(2) as would (but for this sentence)
apply in respect of the acquisition of an interest in the
corporation within the 10-year period beginning on the date of
the distribution shall not apply.
(c) Constructive ownership of stock
(1) In general
Except as provided in paragraph (2) of this subsection, section
318(a) shall apply in determining the ownership of stock for
purposes of this section.
(2) For determining termination of interest
(A) In the case of a distribution described in subsection
(b)(3), section 318(a)(1) shall not apply if -
(i) immediately after the distribution the distributee has
no interest in the corporation (including an interest as
officer, director, or employee), other than an interest as a
creditor,
(ii) the distributee does not acquire any such interest
(other than stock acquired by bequest or inheritance) within
10 years from the date of such distribution, and
(iii) the distributee, at such time and in such manner as
the Secretary by regulations prescribes, files an agreement
to notify the Secretary of any acquisition described in
clause (ii) and to retain such records as may be necessary
for the application of this paragraph.
If the distributee acquires such an interest in the corporation
(other than by bequest or inheritance) within 10 years from the
date of the distribution, then the periods of limitation
provided in sections 6501 and 6502 on the making of an
assessment and the collection by levy or a proceeding in court
shall, with respect to any deficiency (including interest and
additions to the tax) resulting from such acquisition, include
one year immediately following the date on which the
distributee (in accordance with regulations prescribed by the
Secretary) notifies the Secretary of such acquisition; and such
assessment and collection may be made notwithstanding any
provision of law or rule of law which otherwise would prevent
such assessment and collection.
(B) Subparagraph (A) of this paragraph shall not apply if -
(i) any portion of the stock redeemed was acquired,
directly or indirectly, within the 10-year period ending on
the date of the distribution by the distributee from a person
the ownership of whose stock would (at the time of
distribution) be attributable to the distributee under
section 318(a), or
(ii) any person owns (at the time of the distribution)
stock the ownership of which is attributable to the
distributee under section 318(a) and such person acquired any
stock in the corporation, directly or indirectly, from the
distributee within the 10-year period ending on the date of
the distribution, unless such stock so acquired from the
distributee is redeemed in the same transaction.
The preceding sentence shall not apply if the acquisition (or,
in the case of clause (ii), the disposition) by the distributee
did not have as one of its principal purposes the avoidance of
Federal income tax.
(C) Special rule for waivers by entities
(i) In general
Subparagraph (A) shall not apply to a distribution to any
entity unless -
(I) such entity and each related person meet the
requirements of clauses (i), (ii), and (iii) of
subparagraph (A), and
(II) each related person agrees to be jointly and
severally liable for any deficiency (including interest and
additions to tax) resulting from an acquisition described
in clause (ii) of subparagraph (A).
In any case to which the preceding sentence applies, the
second sentence of subparagraph (A) and subparagraph (B)(ii)
shall be applied by substituting "distributee or any related
person" for "distributee" each place it appears.
(ii) Definitions
For purposes of this subparagraph -
(I) the term "entity" means a partnership, estate, trust,
or corporation; and
(II) the term "related person" means any person to whom
ownership of stock in the corporation is (at the time of
the distribution) attributable under section 318(a)(1) if
such stock is further attributable to the entity under
section 318(a)(3).
(d) Redemptions treated as distributions of property
Except as otherwise provided in this subchapter, if a corporation
redeems its stock (within the meaning of section 317(b)), and if
subsection (a) of this section does not apply, such redemption
shall be treated as a distribution of property to which section 301
applies.
(e) Partial liquidation defined
(1) In general
For purposes of subsection (b)(4), a distribution shall be
treated as in partial liquidation of a corporation if -
(A) the distribution is not essentially equivalent to a
dividend (determined at the corporate level rather than at the
shareholder level), and
(B) the distribution is pursuant to a plan and occurs within
the taxable year in which the plan is adopted or within the
succeeding taxable year.
(2) Termination of business
The distributions which meet the requirements of paragraph
(1)(A) shall include (but shall not be limited to) a distribution
which meets the requirements of subparagraphs (A) and (B) of this
paragraph:
(A) The distribution is attributable to the distributing
corporation's ceasing to conduct, or consists of the assets of,
a qualified trade or business.
(B) Immediately after the distribution, the distributing
corporation is actively engaged in the conduct of a qualified
trade or business.
(3) Qualified trade or business
For purposes of paragraph (2), the term "qualified trade or
business" means any trade or business which -
(A) was actively conducted throughout the 5-year period
ending on the date of the redemption, and
(B) was not acquired by the corporation within such period in
a transaction in which gain or loss was recognized in whole or
in part.
(4) Redemption may be pro rata
Whether or not a redemption meets the requirements of
subparagraphs (A) and (B) of paragraph (2) shall be determined
without regard to whether or not the redemption is pro rata with
respect to all of the shareholders of the corporation.
(5) Treatment of certain pass-thru entities
For purposes of determining under subsection (b)(4) whether any
stock is held by a shareholder who is not a corporation, any
stock held by a partnership, estate, or trust shall be treated as
if it were actually held proportionately by its partners or
beneficiaries.
(f) Cross references
For special rules relating to redemption -
(1) Death Taxes. - Of stock to pay death taxes, see section
303.
(2) Section 306 Stock. - Of section 306 stock, see section
306.
(3) Liquidations. - Of stock in complete liquidation, see
section 331.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 85; Pub. L. 94-455, title XIX,
Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 96-589,
Sec. 5(b), Dec. 24, 1980, 94 Stat. 3405; Pub. L. 97-248, title II,
Secs. 222(c), 228(a), Sept. 3, 1982, 96 Stat. 478, 493; Pub. L.
98-369, div. A, title VII, Sec. 712(i)(1), July 18, 1984, 98 Stat.
948.)
-MISC1-
AMENDMENTS
1984 - Subsec. (f)(3). Pub. L. 98-369 substituted "complete
liquidation" for "partial or complete liquidation".
1982 - Subsec. (a). Pub. L. 97-248, Sec. 222(c)(3), substituted
"paragraph (1), (2), (3), or (4)" for "paragraph (1), (2), or (3)".
Subsec. (b)(4), (5). Pub. L. 97-248, Sec. 222(c)(1), (4), added
par. (4), redesignated former par. (4) as (5) and substituted
"paragraph (2), (3), or (4)" for "paragraph (2) or (3)" after "to
meet the requirements of", and "paragraph (1), (2), or (4)" for
"paragraph (1) or (2)" after "and also the requirements of".
Subsec. (c)(2)(C). Pub. L. 97-248, Sec. 228(a), added subpar.
(C).
Subsecs. (e), (f). Pub. L. 97-248, Sec. 222(c)(2), added subsec.
(e) and redesignated former subsec. (e) as (f).
1980 - Subsec. (a). Pub. L. 96-589, Sec. 5(b)(2)(A), struck out
reference to par. (4) of subsec. (b).
Subsec. (b)(4), (5). Pub. L. 96-589, Sec. 5(b)(1), (2)(B),
redesignated par. (5) as (4) and struck out reference to par. (4)
in two places. Former par. (4) was struck out.
1976 - Subsec. (c)(2). Pub. L. 94-455 struck out "or his
delegate" after "Secretary" wherever appearing.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 effective as if included in the
provision of the Tax Equity and Fiscal Responsibility Act of 1982,
Pub. L. 97-248, to which such amendment relates, see section 715 of
Pub. L. 98-369, set out as a note under section 31 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT; PARTIAL LIQUIDATIONS
Section 228(b) of Pub. L. 97-248 provided that: "The amendment
made by subsection (a) [amending this section]" shall apply with
respect to distributions after August 31, 1982, in taxable years
ending after such date."
Section 222(f) of Pub. L. 97-248, as amended by Pub. L. 97-448,
title III, Sec. 306(a)(6)(A), Jan. 12, 1983, 96 Stat. 2402; Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - The amendments made by this section [amending
this section and sections 306, 312, 331, 334, 336, 341, 346, 543,
and 562 of this title and repealing section 338 of this title]
shall apply to distributions after August 31, 1982.
"(2) Exceptions. -
"(A) Ruling requests. - The amendments made by this section
shall not apply to distributions made by any corporation if -
"(i)(I) on July 22, 1982, there was a ruling request by such
corporation pending with the Internal Revenue Service as to
whether such distributions would qualify as a partial
liquidation, or
"(II) within the period beginning on July 12, 1981, and
ending on July 22, 1982, the Internal Revenue Service granted a
ruling to such corporation that the distributions would qualify
as a partial liquidation, and
"(ii) such distributions are pursuant to a plan of partial
liquidation adopted before October 1, 1982 (or, if later, 90
days after the date on which the Internal Revenue Service
granted a ruling pursuant to the request described in clause
(i)(I)).
"(B) Plans adopted before july 23, 1982. - The amendments made
by this section shall not apply to distributions made pursuant to
a plan of partial liquidation adopted before July 23, 1982.
"(C) Control acquired after 1981 and before july 23, 1982. -
The amendments made by this section shall not apply to
distributions made pursuant to a plan of partial liquidation
adopted before October 1, 1982, where control of the corporation
making the distributions was acquired after December 31, 1981,
and before July 23, 1982.
"(D) Tender offer or binding contract outstanding on july 22,
1982. -
"(i) In general. - The amendments made by this section shall
not apply to distributions made by a corporation if -
"(I) such distributions are pursuant to a plan of
liquidation adopted before October 1, 1982, and
"(II) control of such corporation was acquired after July
22, 1982, pursuant to a tender offer or binding contract
outstanding on such date.
"(ii) Extension of time for adopting plan where acquisition
subject to federal regulatory approval. - If the acquisition
described in clause (i)(II) is subject to approval by a Federal
regulatory agency, clause (i) shall be applied by substituting
for 'October 1, 1982' the date which is 90 days after the date
on which approval by the Federal regulatory agency of such
acquisition becomes final.
"(iii) Special rule where offer subject to approval by
foreign regulatory body. - In any case where an offer to
acquire stock in a corporation was subject to intervention by a
foreign regulatory body and a public announcement of such an
offer resulted in the intervention by such foreign regulatory
body before July 23, 1982 -
"(I) such public announcement shall be treated as a tender
offer, and
"(II) clause (i) shall be applied by substituting for
'October 1, 1982' the date which is 90 days after the date on
which such regulatory body approves a public offer to acquire
stock in such corporation.
"(iv) Special rule where one-third of shares acquired during
march and april 1982. - If -
"(I) one-third or more of the shares of a corporation were
acquired by another corporation during March and April 1982,
and
"(II) during March or April 1982, the acquiring corporation
filed with the Federal Trade Commission notification of its
intent to acquire control of the acquired corporation,
subclause (II) of clause (i) shall not apply with respect to
distributions made by the acquired corporation.
"(E) Insurance companies. - The amendments made by this section
shall not apply to distributions made by an insurance company
pursuant to a plan of partial liquidation adopted before October
1, 1982, where control was acquired by the distributee or its
parent after December 31, 1980, and before July 23, 1982, and the
conduct of the insurance business by the distributee is
conditioned on approval by a State regulatory authority.
For purposes of this paragraph, the term 'control' has the meaning
given to such term by section 368(c) of the Internal Revenue Code
of 1986 [formerly I.R.C. 1954], except that in applying such
section both direct and indirect ownership of stock shall be taken
into account.
"(3) Approval of plan by board of directors. - For purposes of -
"(A) paragraph (2), and
"(B) applying section 346(a)(2) of the Internal Revenue Code of
1986 (as in effect on the day before the date of the enactment of
this Act) [Sept. 3, 1982] to distributions to which (but for
paragraph (2)) the amendments made by this section would apply,
a plan of liquidation shall be treated as adopted when approved by
the corporation's board of directors.
"(4) Coordination with amendments made by section 224. - For
purposes of section 338(e)(2)(C) of the Internal Revenue Code of
1986 (as added by section 224), any property acquired in a
distribution to which the amendments made by this section do not
apply by reason of paragraph (2) shall be treated as acquired
before September 1, 1982."
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-589 applicable to stock which is issued
after Dec. 31, 1980, except as otherwise provided, see section
7(d)(2), (f) of Pub. L. 96-589, set out as a note under section 108
of this title.
SAVINGS PROVISIONS
Applicability of subsec. (b)(1) to the determination of gross
investment income under sections 4940 and 4948(a) of this title,
see section 101(l)(8) of Pub. L. 91-172, set out as a note under
section 4940 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 48, 301, 304, 306, 312,
318, 562, 857, 1059, 1246, 1368, 1445 of this title.
-End-
-CITE-
26 USC Sec. 303 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART I - DISTRIBUTIONS BY CORPORATIONS
Subpart A - Effects on Recipients
-HEAD-
Sec. 303. Distributions in redemption of stock to pay death taxes
-STATUTE-
(a) In general
A distribution of property to a shareholder by a corporation in
redemption of part or all of the stock of such corporation which
(for Federal estate tax purposes) is included in determining the
gross estate of a decedent, to the extent that the amount of such
distribution does not exceed the sum of -
(1) the estate, inheritance, legacy, and succession taxes
(including any interest collected as a part of such taxes)
imposed because of such decedent's death, and
(2) the amount of funeral and administration expenses allowable
as deductions to the estate under section 2053 (or under section
2106 in the case of the estate of a decedent nonresident, not a
citizen of the United States),
shall be treated as a distribution in full payment in exchange for
the stock so redeemed.
(b) Limitations on application of subsection (a)
(1) Period for distribution
Subsection (a) shall apply only to amounts distributed after
the death of the decedent and -
(A) within the period of limitations provided in section
6501(a) for the assessment of the Federal estate tax
(determined without the application of any provision other than
section 6501(a)), or within 90 days after the expiration of
such period,
(B) if a petition for redetermination of a deficiency in such
estate tax has been filed with the Tax Court within the time
prescribed in section 6213, at any time before the expiration
of 60 days after the decision of the Tax Court becomes final,
or
(C) if an election has been made under section 6166 and if
the time prescribed by this subparagraph expires at a later
date than the time prescribed by subparagraph (B) of this
paragraph, within the time determined under section 6166 for
the payment of the installments.
(2) Relationship of stock to decedent's estate
(A) In general
Subsection (a) shall apply to a distribution by a corporation
only if the value (for Federal estate tax purposes) of all of
the stock of such corporation which is included in determining
the value of the decedent's gross estate exceeds 35 percent of
the excess of -
(i) the value of the gross estate of such decedent, over
(ii) the sum of the amounts allowable as a deduction under
section 2053 or 2054.
(B) Special rule for stock of two or more corporations
For purposes of subparagraph (A), stock of 2 or more
corporations, with respect to each of which there is included
in determining the value of the decedent's gross estate 20
percent or more in value of the outstanding stock, shall be
treated as the stock of a single corporation. For purposes of
the 20-percent requirement of the preceding sentence, stock
which, at the decedent's death, represents the surviving
spouse's interest in property held by the decedent and the
surviving spouse as community property or as joint tenants,
tenants by the entirety, or tenants in common shall be treated
as having been included in determining the value of the
decedent's gross estate.
(3) Relationship of shareholder to estate tax
Subsection (a) shall apply to a distribution by a corporation
only to the extent that the interest of the shareholder is
reduced directly (or through a binding obligation to contribute)
by any payment of an amount described in paragraph (1) or (2) of
subsection (a).
(4) Additional requirements for distributions made more than 4
years after decedent's death
In the case of amounts distributed more than 4 years after the
date of the decedent's death, subsection (a) shall apply to a
distribution by a corporation only to the extent of the lesser of
-
(A) the aggregate of the amounts referred to in paragraph (1)
or (2) of subsection (a) which remained unpaid immediately
before the distribution, or
(B) the aggregate of the amounts referred to in paragraph (1)
or (2) of subsection (a) which are paid during the 1-year
period beginning on the date of such distribution.
(c) Stock with substituted basis
If -
(1) a shareholder owns stock of a corporation (referred to in
this subsection as "new stock") the basis of which is determined
by reference to the basis of stock of a corporation (referred to
in this subsection as "old stock"),
(2) the old stock was included (for Federal estate tax
purposes) in determining the gross estate of a decedent, and
(3) subsection (a) would apply to a distribution of property to
such shareholder in redemption of the old stock,
then, subject to the limitation specified in subsection (b),
subsection (a) shall apply in respect of a distribution in
redemption of the new stock.
(d) Special rules for generation-skipping transfers
Where stock in a corporation is the subject of a
generation-skipping transfer (within the meaning of section
2611(a)) occurring at the same time as and as a result of the death
of an individual -
(1) the stock shall be deemed to be included in the gross
estate of such individual;
(2) taxes of the kind referred to in subsection (a)(1) which
are imposed because of the generation-skipping transfer shall be
treated as imposed because of such individual's death (and for
this purpose the tax imposed by section 2601 shall be treated as
an estate tax);
(3) the period of distribution shall be measured from the date
of the generation-skipping transfer; and
(4) the relationship of stock to the decedent's estate shall be
measured with reference solely to the amount of the
generation-skipping transfer.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 88; Pub. L. 94-455, title XX,
Secs. 2004(e), 2006(b)(4), Oct. 4, 1976, 90 Stat. 1871, 1889; Pub.
L. 97-34, title IV, Sec. 422(b), (e)(1), Aug. 13, 1981, 95 Stat.
314, 316; Pub. L. 99-514, title XIV, Sec. 1432(b), Oct. 22, 1986,
100 Stat. 2730.)
-MISC1-
AMENDMENTS
1986 - Subsec. (d). Pub. L. 99-514 amended subsec. (d) generally.
Prior to amendment, subsec. (d) read as follows: "Under regulations
prescribed by the Secretary, where stock in a corporation is
subject to tax under section 2601 as a result of a
generation-skipping transfer (within the meaning of section
2611(a)), which occurs at or after the death of the deemed
transferor (within the meaning of section 2612) -
"(1) the stock shall be deemed to be included in the gross
estate of the deemed transferor;
"(2) taxes of the kind referred to in subsection (a)(1) which
are imposed because of the generation-skipping transfer shall be
treated as imposed because of the deemed transferor's death (and
for this purpose the tax imposed by section 2601 shall be treated
as an estate tax);
"(3) the period of distribution shall be measured from the date
of the generation-skipping transfer; and
"(4) the relationship of stock to the decedent's estate shall
be measured with reference solely to the amount of the
generation-skipping transfer."
1981 - Subsec. (b)(1)(C). Pub. L. 97-34, Sec. 422(e)(1), struck
out "or 6166A" after "section 6166" in two places.
Subsec. (b)(2)(A). Pub. L. 97-34, Sec. 422(b)(1), substituted
"35" for "50" before percent.
Subsec. (b)(2)(B). Pub. L. 97-34, Sec. 422(b)(2), in heading,
substituted "stock in 2" for "stock of two", in first sentence,
struck out "the 50 percent requirement" before "of subparagraph
(A)" and substituted "2" for "two" and "20 percent or more in
value" for "more than 75 percent in value", and, in last sentence,
substituted "For purposes of the 20-percent requirement" for "For
the purpose of the 75 percent requirement" and, in determining
value of decedent's gross estate, treated the estate as including
stock which at decedent's death represented surviving spouse's
interest in property held by the decedent and surviving spouse
either as joint tenants, tenants by the entirety, or tenants in
common.
1976 - Subsec. (b)(1)(C). Pub. L. 94-455, Sec. 2004(e)(1), added
subpar. (C).
Subsec. (b)(2)(A). Pub. L. 94-455, Sec. 2004(e)(2)(A),
substituted provisions limiting the applicability of subsec. (a) to
corporate distributions in which the value of the corporate stock
included in decedent's gross estate exceeds 50 percent of the gross
estate over deductions allowed under sections 2053 and 2054 for
provisions limiting the applicability of subsec. (a) to corporate
distributions in which the value of the corporate stock included in
decedent's gross estate is either more than 35 percent of the gross
estate or 50 percent of the taxable estate.
Subsec. (b)(2)(B). Pub. L. 94-455, Sec. 2004(e)(2)(B),
substituted "the 50 percent requirement" for "the 35 percent and 50
percent requirements".
Subsec. (b)(3), (4). Pub. L. 94-455, Sec. 2004(e)(3), added pars.
(3) and (4).
Subsec. (c). Pub. L. 94-455, Sec. 2004(e)(4), substituted
"limitation specified in subsection (b)" for "limitation specified
in subsection (b)(1)".
Subsec. (d). Pub. L. 94-455, Sec. 2006(b)(4), added subsec. (d).
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to generation-skipping
transfers (within the meaning of section 2611 of this title) made
after Oct. 22, 1986, except as otherwise provided, see section 1433
of Pub. L. 99-514, set out as an Effective Date note under section
2601 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by Pub. L. 97-34 applicable to estates of decedents
dying after Dec. 31, 1981, see section 422(f) of Pub. L. 97-34, set
out as a note under section 6166 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 2004(e)(1)-(4) of Pub. L. 94-455 applicable
to estates of decedents dying after Dec. 31, 1976, see section
2004(g) of Pub. L. 94-455, set out as an Effective Date note under
section 6166 of this title.
For effective date of amendment by section 2006(b)(4) of Pub. L.
94-455, see section 2006(c) of Pub. L. 94-455, set out as an
Effective Date note under section 2601 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 302, 304, 312, 537, 1248,
1368, 2035, 2056A, 6166 of this title.
-End-
-CITE-
26 USC Sec. 304 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART I - DISTRIBUTIONS BY CORPORATIONS
Subpart A - Effects on Recipients
-HEAD-
Sec. 304. Redemption through use of related corporations
-STATUTE-
(a) Treatment of certain stock purchases
(1) Acquisition by related corporation (other than subsidiary)
For purposes of sections 302 and 303, if -
(A) one or more persons are in control of each of two
corporations, and
(B) in return for property, one of the corporations acquires
stock in the other corporation from the person (or persons) so
in control,
then (unless paragraph (2) applies) such property shall be
treated as a distribution in redemption of the stock of the
corporation acquiring such stock. To the extent that such
distribution is treated as a distribution to which section 301
applies, the transferor and the acquiring corporation shall be
treated in the same manner as if the transferor had transferred
the stock so acquired to the acquiring corporation in exchange
for stock of the acquiring corporation in a transaction to which
section 351(a) applies, and then the acquiring corporation had
redeemed the stock it was treated as issuing in such transaction.
(2) Acquisition by subsidiary
For purposes of sections 302 and 303, if -
(A) in return for property, one corporation acquires from a
shareholder of another corporation stock in such other
corporation, and
(B) the issuing corporation controls the acquiring
corporation,
then such property shall be treated as a distribution in
redemption of the stock of the issuing corporation.
(b) Special rules for application of subsection (a)
(1) Rules for determinations under section 302(b)
In the case of any acquisition of stock to which subsection (a)
of this section applies, determinations as to whether the
acquisition is, by reason of section 302(b), to be treated as a
distribution in part or full payment in exchange for the stock
shall be made by reference to the stock of the issuing
corporation. In applying section 318(a) (relating to constructive
ownership of stock) with respect to section 302(b) for purposes
of this paragraph, sections 318(a)(2)(C) and 318(a)(3)(C) shall
be applied without regard to the 50 percent limitation contained
therein.
(2) Amount constituting dividend
In the case of any acquisition of stock to which subsection (a)
applies, the determination of the amount which is a dividend (and
the source thereof) shall be made as if the property were
distributed -
(A) by the acquiring corporation to the extent of its
earnings and profits, and
(B) then by the issuing corporation to the extent of its
earnings and profits.
(3) Coordination with section 351
(A) Property treated as received in redemption
Except as otherwise provided in this paragraph, subsection
(a) (and not section 351 and not so much of sections 357 and
358 as relates to section 351) shall apply to any property
received in a distribution described in subsection (a).
(B) Certain assumptions of liability, etc.
(i) In general
In the case of an acquisition described in section 351,
subsection (a) shall not apply to any liability -
(I) assumed by the acquiring corporation, or
(II) to which the stock is subject,
if such liability was incurred by the transferor to acquire
the stock. For purposes of the preceding sentence, the term
"stock" means stock referred to in paragraph (1)(B) or (2)(A)
of subsection (a).
(ii) Extension of obligations, etc.
For purposes of clause (i), an extension, renewal, or
refinancing of a liability which meets the requirements of
clause (i) shall be treated as meeting such requirements.
(iii) Clause (i) does not apply to stock acquired from
related person except where complete termination
Clause (i) shall apply only to stock acquired by the
transferor from a person -
(I) none of whose stock is attributable to the transferor
under section 318(a) (other than paragraph (4) thereof), or
(II) who satisfies rules similar to the rules of section
302(c)(2) with respect to both the acquiring and the
issuing corporations (determined as if such person were a
distributee of each such corporation).
(C) Distributions incident to formation of bank holding
companies
If -
(i) pursuant to a plan, control of a bank is acquired and
within 2 years after the date on which such control is
acquired, stock constituting control of such bank is
transferred to a BHC in connection with its formation,
(ii) incident to the formation of the BHC there is a
distribution of property described in subsection (a), and
(iii) the shareholders of the BHC who receive distributions
of such property do not have control of such BHC,
then, subsection (a) shall not apply to any securities received
by a qualified minority shareholder incident to the formation
of such BHC. For purposes of this subparagraph, any assumption
of (or acquisition of stock subject to) a liability under
subparagraph (B) shall not be treated as a distribution of
property.
(D) Definitions and special rule
For purposes of subparagraph (C) and this subparagraph -
(i) Qualified minority shareholder
The term "qualified minority shareholder" means any
shareholder who owns less than 10 percent (in value) of the
stock of the BHC. For purposes of the preceding sentence, the
rules of paragraph (3) of subsection (c) shall apply.
(ii) BHC
The term "BHC" means a bank holding company (within the
meaning of section 2(a) of the Bank Holding Company Act of
1956).
(iii) Special rule in case of BHC's formed before 1985
In the case of a BHC which is formed before 1985, clause
(i) of subparagraph (C) shall not apply.
(4) Treatment of certain intragroup transactions
(A) In general
In the case of any transfer described in subsection (a) of
stock from 1 member of an affiliated group to another member of
such group, proper adjustments shall be made to -
(i) the adjusted basis of any intragroup stock, and
(ii) the earnings and profits of any member of such group,
to the extent necessary to carry out the purposes of this
section.
(B) Definitions
For purposes of this paragraph -
(i) Affiliated group
The term "affiliated group" has the meaning given such term
by section 1504(a).
(ii) Intragroup stock
The term "intragroup stock" means any stock which -
(I) is in a corporation which is a member of an
affiliated group, and
(II) is held by another member of such group.
(5) Acquisitions by foreign corporations
(A) In general
In the case of any acquisition to which subsection (a)
applies in which the acquiring corporation is a foreign
corporation, the only earnings and profits taken into account
under paragraph (2)(A) shall be those earnings and profits -
(i) which are attributable (under regulations prescribed by
the Secretary) to stock of the acquiring corporation owned
(within the meaning of section 958(a)) by a corporation or
individual which is -
(I) a United States shareholder (within the meaning of
section 951(b)) of the acquiring corporation, and
(II) the transferor or a person who bears a relationship
to the transferor described in section 267(b) or 707(b),
and
(ii) which were accumulated during the period or periods
such stock was owned by such person while the acquiring
corporation was a controlled foreign corporation.
(B) Regulations
The Secretary shall prescribe such regulations as are
appropriate to carry out the purposes of this paragraph.
(6) Avoidance of multiple inclusions, etc.
In the case of any acquisition to which subsection (a) applies
in which the acquiring corporation or the issuing corporation is
a foreign corporation, the Secretary shall prescribe such
regulations as are appropriate in order to eliminate a multiple
inclusion of any item in income by reason of this subpart and to
provide appropriate basis adjustments (including modifications to
the application of sections 959 and 961).
(c) Control
(1) In general
For purposes of this section, control means the ownership of
stock possessing at least 50 percent of the total combined voting
power of all classes of stock entitled to vote, or at least 50
percent of the total value of shares of all classes of stock. If
a person (or persons) is in control (within the meaning of the
preceding sentence) of a corporation which in turn owns at least
50 percent of the total combined voting power of all stock
entitled to vote of another corporation, or owns at least 50
percent of the total value of the shares of all classes of stock
of another corporation, then such person (or persons) shall be
treated as in control of such other corporation.
(2) Stock acquired in the transaction
For purposes of subsection (a)(1) -
(A) General rule
Where 1 or more persons in control of the issuing corporation
transfer stock of such corporation in exchange for stock of the
acquiring corporation, the stock of the acquiring corporation
received shall be taken into account in determining whether
such person or persons are in control of the acquiring
corporation.
(B) Definition of control group
Where 2 or more persons in control of the issuing corporation
transfer stock of such corporation to the acquiring corporation
and, after the transfer, the transferors are in control of the
acquiring corporation, the person or persons in control of each
corporation shall include each of the persons who so transfer
stock.
(3) Constructive ownership
(A) In general
Section 318(a) (relating to constructive ownership of stock)
shall apply for purposes of determining control under this
section.
(B) Modification of 50-percent limitations in section 318
For purposes of subparagraph (A) -
(i) paragraph (2)(C) of section 318(a) shall be applied by
substituting "5 percent" for "50 percent", and
(ii) paragraph (3)(C) of section 318(a) shall be applied -
(I) by substituting "5 percent" for "50 percent", and
(II) in any case where such paragraph would not apply but
for subclause (I), by considering a corporation as owning
the stock (other than stock in such corporation) owned by
or for any shareholder of such corporation in that
proportion which the value of the stock which such
shareholder owned in such corporation bears to the value of
all stock in such corporation.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 89; Pub. L. 88-554, Sec.
4(b)(1), Aug. 31, 1964, 78 Stat. 763; Pub. L. 97-248, title II,
Sec. 226(a)(1)(A), (2), (3), Sept. 3, 1982, 96 Stat. 490, 491; Pub.
L. 98-369, div. A, title VII, Sec. 712(l)(1)-(5)(A), July 18, 1984,
98 Stat. 953, 954; Pub. L. 99-514, title XVIII, Sec. 1875(b), Oct.
22, 1986, 100 Stat. 2894; Pub. L. 100-203, title X, Sec. 10223(c),
Dec. 22, 1987, 101 Stat. 1330-411; Pub. L. 100-647, title II, Sec.
2004(k)(2), Nov. 10, 1988, 102 Stat. 3605; Pub. L. 105-34, title X,
Sec. 1013(a), (c), Aug. 5, 1997, 111 Stat. 918; Pub. L. 105-206,
title VI, Sec. 6010(d), July 22, 1998, 112 Stat. 814.)
-REFTEXT-
REFERENCES IN TEXT
Section 2(a) of the Bank Holding Company Act of 1956, referred to
in subsec. (b)(3)(D)(ii), is classified to section 1841(a) of Title
12, Banks and Banking.
-MISC1-
AMENDMENTS
1998 - Subsec. (b)(5)(B), (C). Pub. L. 105-206, Sec. 6010(d)(1),
redesignated subpar. (C) as (B) and struck out heading and text of
former subpar. (B). Text read as follows: "For purposes of
subparagraph (A), the rules of section 1248(d) shall apply except
to the extent otherwise provided by the Secretary."
Subsec. (b)(6). Pub. L. 105-206, Sec. 6010(d)(2), added par. (6).
1997 - Subsec. (a)(1). Pub. L. 105-34, Sec. 1013(a), amended last
sentence generally. Prior to amendment, last sentence read as
follows: "To the extent that such distribution is treated as a
distribution to which section 301 applies, the stock so acquired
shall be treated as having been transferred by the person from whom
acquired, and as having been received by the corporation acquiring
it, as a contribution to the capital of such corporation."
Subsec. (b)(5). Pub. L. 105-34, Sec. 1013(c), added par. (5).
1988 - Subsec. (b)(4)(A). Pub. L. 100-647 substituted "stock from
1 member" for "stock of 1 member".
1987 - Subsec. (b)(4). Pub. L. 100-203 added par. (4).
1986 - Subsec. (a)(1). Pub. L. 99-514 substituted "To the extent
that such distribution is treated as a distribution to which
section 301 applies" for "In any such case" in last sentence.
1984 - Subsec. (b)(2). Pub. L. 98-369, Sec. 712(l)(1),
consolidated former subpars. "(A) Where subsection (a)(1) applies"
and "(B) Where subsection (a)(2) applies" in one paragraph,
inserted provision respecting source of dividend, and incorporated
in cls. (A) and (B) former subpar. (A) and (B) provisions which had
required determination of amount which is a dividend to be made by
reference to earnings and profits of the acquiring corporation and
as if the property were distributed by the acquiring corporation to
the issuing corporation and immediately thereafter distributed by
the issuing corporation.
Subsec. (b)(3)(A). Pub. L. 98-369, Sec. 712(l)(2), substituted
"section 351 and not so much of sections 357 and 358 as relates to
section 351" for "part III".
Subsec. (b)(3)(B)(i). Pub. L. 98-369, Sec. 712(l)(3)(A)(i),
substituted "In the case of an acquisition described in section
351, subsection (a)" for "Subsection (a)".
Subsec. (b)(3)(B)(iii). Pub. L. 98-369, Sec. 712(l)(3)(B), added
cl. (iii).
Subsec. (b)(3)(C). Pub. L. 98-369, Sec. 712(l)(4), inserted
following cl. (iii) "For purposes of this subparagraph, any
assumption of (or acquisition of stock subject to) a liability
under subparagraph (B) shall not be treated as a distribution of
property."
Subsec. (c)(3). Pub. L. 98-369, Sec. 712(l)(5)(A), designated
existing first sentence as subpar. "(A) In general" and substituted
subpar. (B) for former second sentence which read "For purposes of
the preceding sentence, sections 318(a)(2)(C) and 318(a)(3)(C)
shall be applied without regard to the 50 percent limitation
contained therein."
1982 - Subsec. (b)(2)(A). Pub. L. 97-248, Sec. 226(a)(3),
substituted "as if the property were distributed by the issuing
corporation to the acquiring corporation and immediately thereafter
distributed by the acquiring corporation" for "soley by reference
to the earnings and profits of the acquiring corporation" after
"dividend shall be made".
Subsec. (b)(3). Pub. L. 97-248, Sec. 226(a)(1)(A), added par.
(3).
Subsec. (c)(2), (3). Pub. L. 97-248, Sec. 226(a)(2), added par.
(2), redesignated former par. (2) as (3) and substituted "this
section" for "paragraph (1)" after "determining control under".
1964 - Subsecs. (b)(1), (c)(2). Pub. L. 88-554 inserted reference
to section 318(a)(3)(C) of this title.
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1013(d) of Pub. L. 105-34 provided that:
"(1) In general. - The amendments made by this section [amending
this section and section 1059 of this title] shall apply to
distributions and acquisitions after June 8, 1997.
"(2) Transition rule. - The amendments made by this section shall
not apply to any distribution or acquisition after June 8, 1997, if
such distribution or acquisition is -
"(A) made pursuant to a written agreement which was binding on
such date and at all times thereafter,
"(B) described in a ruling request submitted to the Internal
Revenue Service on or before such date, or
"(C) described in a public announcement or filing with the
Securities and Exchange Commission on or before such date."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provisions of the Revenue Act of
1987, Pub. L. 100-203, title X, to which such amendment relates,
see section 2004(u) of Pub. L. 100-647, set out as a note under
section 56 of this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Section 10223(d) of Pub. L. 100-203, as amended by Pub. L.
100-647, title II, Sec. 2004(k)(3), (4), Nov. 10, 1988, 102 Stat.
3605, 3606, provided that:
"(1) In general. - The amendments made by this section [amending
this section and sections 337 and 355 of this title] shall apply to
distributions or transfers after December 15, 1987.
"(2) Exceptions. -
"(A) Distributions. - The amendments made by this section shall
not apply to any distribution after December 15, 1987, and before
January 1, 1993, if -
"(i) 80 percent or more of the stock of the distributing
corporation was acquired by the distributee before December 15,
1987, or
"(ii) 80 percent or more of the stock of the distributing
corporation was acquired by the distributee before January 1,
1989, pursuant to a binding written contract or tender offer in
effect on December 15, 1987.
For purposes of the preceding sentence, stock described in
section 1504(a)(4) of the Internal Revenue Code of 1986 shall not
be taken into account.
"(B) Section 304 transfers. - The amendment made by subsection
(c) [amending this section] shall not apply to any transfer after
December 15, 1987, and on or before March 31, 1988, if such
transfer is -
"(i) between corporations which are members of the same
affiliated group on December 15, 1987, or
"(ii) between corporations which become members of the same
affiliated group pursuant to a binding written contract or
tender offer in effect on December 15, 1987.
"(C) Distributions covered by prior transition rule. - The
amendments made by this section shall not apply to any
distribution to which the amendments made by subtitle D of title
VI of the Tax Reform Act of 1986 [sections 631 to 634 of Pub. L.
99-514, see Tables for classification] do not apply.
"(D) Treatment of certain members of affiliated group. -
"(i) In general. - For purposes of subparagraph (A), all
corporations which were in existence on the designated date and
were members of the same affiliated group which included the
distributees on such date shall be treated as 1 distributee.
"(ii) Limitation to stock held on designated date. - Clause
(i) shall not exempt any distribution from the amendments made
by this section if such distribution is with respect to stock
not held by the distributee (determined without regard to
clause (i)) on the designated date directly or indirectly
through a corporation which goes out of existence in the
transaction.
"(iii) Designated date. - For purposes of this subparagraph,
the term 'designated date' means the later of -
"(I) December 15, 1987, or
"(II) the date on which the acquisition meeting the
requirements of subparagraph (A) occurred."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 effective, except as otherwise
provided, as if included in the provisions of the Tax Reform Act of
1984, Pub. L. 98-369, div. A, to which such amendment relates, see
section 1881 of Pub. L. 99-514, set out as a note under section 48
of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 712(l)(7) of Pub. L. 98-369, as amended by Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(A) In general. - Except as otherwise provided in this
paragraph, the amendments made by paragraphs (1) and (3) [amending
this section] shall apply to stock acquired after June 18, 1984, in
taxable years ending after such date.
"(B) Election by taxpayer to have amendments apply earlier. - Any
taxpayer may elect, at such time and in such manner as the
Secretary of the Treasury or his delegate may prescribe, to have
the amendments made by paragraphs (1) and (3) apply as if included
in section 226 of the Tax Equity and Fiscal Responsibility Act of
1982 [section 226 of Pub. L. 97-248, which amended this section and
section 306 of this title and enacted Effective Date of 1982
Amendment note set out below].
"(C) Special rule for certain transfers to form bank holding
company. - Except as provided in subparagraph (D), the amendments
made by paragraphs (1) and (3) shall not apply to transfers
pursuant to an application to form a BHC (as defined in section
304(b)(3)(D)(ii) of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954]) filed with the Federal Reserve Board before June 18,
1984, if -
"(i) such BHC was formed not later than the 90th day after the
date of the last required approval of any regulatory authority to
form such BHC, and
"(ii) such BHC did not elect (at such time and in such manner
as the Secretary of the Treasury or his delegate shall prescribe)
not to have the provisions of this subparagraph apply.
"(D) Amendments to apply to certain liabilities incurred before
october 20, 1983. - The amendment made by paragraph (3)(A) shall
apply to the acquisition of any stock to the extent the liability
assumed, or to which such stock is subject, was incurred by the
transferor after October 20, 1983."
Amendment by section 712(l)(2), (4), (5)(A) of Pub. L. 98-369
effective as if included in the provision of the Tax Equity and
Fiscal Responsibility Act of 1982, Pub. L. 97-248, to which such
amendment relates, see section 715 of Pub. L. 98-369, set out as a
note under section 31 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Section 226(c) of Pub. L. 97-248 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and sections
306 and 351 of this title] shall apply to transfers occurring after
August 31, 1982, in taxable years ending after such date.
"(2) Approval by federal reserve board. - The amendments made by
this section shall not apply to transfers pursuant to an
application to form a BHC filed with the Federal Reserve Board
before August 16, 1982, if the BHC was formed not later than the
later of -
"(A) the 90th day after the date of the last required approval
of any regulatory authority to form such BHC, or
"(B) January 1, 1983.
For purposes of this paragraph, the term 'BHC' means a bank holding
company (within the meaning of section 2(a) of the Bank Holding
Company Act of 1956 [section 1841(a) of Title 12, Banks and
Banking])."
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-554 effective Aug. 31, 1964, except that
for purposes of this section and section 302 of this title, such
amendments shall not apply to distributions in payment for stock
acquisitions or redemptions, if such acquisition or redemption
occurred before Aug. 31, 1964, see section 4(c) of Pub. L. 88-554,
set out as a note under section 318 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 306, 318, 351, 368, 999,
1042, 1059, 1202, 6043, 6166 of this title.
-End-
-CITE-
26 USC Sec. 305 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART I - DISTRIBUTIONS BY CORPORATIONS
Subpart A - Effects on Recipients
-HEAD-
Sec. 305. Distributions of stock and stock rights
-STATUTE-
(a) General rule
Except as otherwise provided in this section, gross income does
not include the amount of any distribution of the stock of a
corporation made by such corporation to its shareholders with
respect to its stock.
(b) Exceptions
Subsection (a) shall not apply to a distribution by a corporation
of its stock, and the distribution shall be treated as a
distribution of property to which section 301 applies -
(1) Distributions in lieu of money
If the distribution is, at the election of any of the
shareholders (whether exercised before or after the declaration
thereof), payable either -
(A) in its stock, or
(B) in property.
(2) Disproportionate distributions
If the distribution (or a series of distributions of which such
distribution is one) has the result of -
(A) the receipt of property by some shareholders, and
(B) an increase in the proportionate interests of other
shareholders in the assets or earnings and profits of the
corporation.
(3) Distributions of common and preferred stock
If the distribution (or a series of distributions of which such
distribution is one) has the result of -
(A) the receipt of preferred stock by some common
shareholders, and
(B) the receipt of common stock by other common shareholders.
(4) Distributions on preferred stock
If the distribution is with respect to preferred stock, other
than an increase in the conversion ratio of convertible preferred
stock made solely to take account of a stock dividend or stock
split with respect to the stock into which such convertible stock
is convertible.
(5) Distributions of convertible preferred stock
If the distribution is of convertible preferred stock, unless
it is established to the satisfaction of the Secretary that such
distribution will not have the result described in paragraph (2).
(c) Certain transactions treated as distributions
For purposes of this section and section 301, the Secretary shall
prescribe regulations under which a change in conversion ratio, a
change in redemption price, a difference between redemption price
and issue price, a redemption which is treated as a distribution to
which section 301 applies, or any transaction (including a
recapitalization) having a similar effect on the interest of any
shareholder shall be treated as a distribution with respect to any
shareholder whose proportionate interest in the earnings and
profits or assets of the corporation is increased by such change,
difference, redemption, or similar transaction. Regulations
prescribed under the preceding sentence shall provide that -
(1) where the issuer of stock is required to redeem the stock
at a specified time or the holder of stock has the option to
require the issuer to redeem the stock, a redemption premium
resulting from such requirement or option shall be treated as
reasonable only if the amount of such premium does not exceed the
amount determined under the principles of section 1273(a)(3),
(2) a redemption premium shall not fail to be treated as a
distribution (or series of distributions) merely because the
stock is callable, and
(3) in any case in which a redemption premium is treated as a
distribution (or series of distributions), such premium shall be
taken into account under principles similar to the principles of
section 1272(a).
(d) Definitions
(1) Rights to acquire stock
For purposes of this section, the term "stock" includes rights
to acquire such stock.
(2) Shareholders
For purposes of subsections (b) and (c), the term "shareholder"
includes a holder of rights or of convertible securities.
(e) Treatment of purchaser of stripped preferred stock
(1) In general
If any person purchases after April 30, 1993, any stripped
preferred stock, then such person, while holding such stock,
shall include in gross income amounts equal to the amounts which
would have been so includible if such stripped preferred stock
were a bond issued on the purchase date and having original issue
discount equal to the excess, if any, of -
(A) the redemption price for such stock, over
(B) the price at which such person purchased such stock.
The preceding sentence shall also apply in the case of any person
whose basis in such stock is determined by reference to the basis
in the hands of such purchaser.
(2) Basis adjustments
Appropriate adjustments to basis shall be made for amounts
includible in gross income under paragraph (1).
(3) Tax treatment of person stripping stock
If any person strips the rights to 1 or more dividends from any
stock described in paragraph (5)(B) and after April 30, 1993,
disposes of such dividend rights, for purposes of paragraph (1),
such person shall be treated as having purchased the stripped
preferred stock on the date of such disposition for a purchase
price equal to such person's adjusted basis in such stripped
preferred stock.
(4) Amounts treated as ordinary income
Any amount included in gross income under paragraph (1) shall
be treated as ordinary income.
(5) Stripped preferred stock
For purposes of this subsection -
(A) In general
The term "stripped preferred stock" means any stock described
in subparagraph (B) if there has been a separation in ownership
between such stock and any dividend on such stock which has not
become payable.
(B) Description of stock
Stock is described in this subsection if such stock -
(i) is limited and preferred as to dividends and does not
participate in corporate growth to any significant extent,
and
(ii) has a fixed redemption price.
(6) Purchase
For purposes of this subsection, the term "purchase" means -
(A) any acquisition of stock, where
(B) the basis of such stock is not determined in whole or in
part by the reference to the adjusted basis of such stock in
the hands of the person from whom acquired.
(f) Cross references
For special rules -
(1) Relating to the receipt of stock and stock rights in
corporate organizations and reorganizations, see part III (sec.
351 and following).
(2) In the case of a distribution which results in a gift,
see section 2501 and following.
(3) In the case of a distribution which has the effect of the
payment of compensation, see section 61(a)(1).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 90; Pub. L. 91-172, title IV,
Sec. 421(a), Dec. 30, 1969, 83 Stat. 614; Pub. L. 94-455, title
XIX, Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L.
97-34, title III, Sec. 321(a), (b), Aug. 13, 1981, 95 Stat. 287,
289; Pub. L. 97-448, title I, Sec. 103(f), Jan. 12, 1983, 96 Stat.
2378; Pub. L. 101-508, title XI, Secs. 11322(a), 11801(a)(17),
(c)(7), Nov. 5, 1990, 104 Stat. 1388-463, 1388-521, 1388-524; Pub.
L. 103-66, title XIII, Sec. 13206(c)(1), Aug. 10, 1993, 107 Stat.
465.)
-MISC1-
AMENDMENTS
1993 - Subsecs. (e), (f). Pub. L. 103-66 added subsec. (e) and
redesignated former subsec. (e) as (f).
1990 - Subsec. (c). Pub. L. 101-508, Sec. 11322(a), inserted
sentence at end specifying the contents of regulations.
Subsec. (d)(1). Pub. L. 101-508, Sec. 11801(c)(7)(A), struck out
"(other than subsection (e))" after "this section".
Subsecs. (e), (f). Pub. L. 101-508, Sec. 11801(a)(17), (c)(7)(B),
redesignated subsec. (f) as (e) and struck out former subsec. (e)
relating to dividend reinvestment in stock of public utilities.
1983 - Subsec. (e)(3)(A). Pub. L. 97-448, Sec. 103(f)(1),
substituted "placed in service qualified long-life public utility
property having a cost equal to at least 60 percent of the
aggregate cost of all tangible property described in subparagraph
(A) or (B) of section 1245(a)(3) placed in service by the
corporation during such period" for "acquired public utility
recovery property having a cost equal to at least 60 percent of the
aggregate cost of all tangible property described in section
1245(a)(3) (other than subparagraphs (C) and (D) thereof) acquired
by the corporation during such period".
Subsec. (e)(3)(C)(ii). Pub. L. 97-448, Sec. 103(f)(2),
substituted definition of "qualified long-life public utility
property" for definition of "public utility recovery property"
which had been defined as public utility property (within the
meaning of section 167(l)(3)(A)) which was recovery property which
was 10-year property or 15-year public utility property (within the
meaning of section 168), except that any requirement that the
property be placed in service after December 31, 1980, did not
apply.
1981 - Subsec. (d)(1). Pub. L. 97-34, Sec. 321(b), inserted
"(other than subsection (e))" after "this section".
Subsecs. (e), (f). Pub. L. 97-34, Sec. 321(a), added subsec. (e)
and redesignated former subsec. (e) as (f).
1976 - Subsecs. (b)(5), (c). Pub. L. 94-455 struck out "or his
delegate" after "Secretary".
1969 - Subsec. (a). Pub. L. 91-172 substituted reference to this
section for reference to subsec. (b), and omitted reference to
rights to acquire its stock.
Subsec. (b). Pub. L. 91-172 omitted reference to rights to
acquire its stock, in text preceding par. (1), redesignated former
par. (2) as par. (1) and added pars. (2) to (5). Former par. (1),
providing for the extent to which distribution of preference
dividends were to be treated as distribution of property to which
section 301 applied, was struck out.
Subsecs. (c) to (e). Pub. L. 91-172 added subsecs. (c) and (d)
and redesignated former subsec. (c) as (e).
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 effective Apr. 30, 1993, see section
13206(c)(3) of Pub. L. 103-66 set out as a note under section 167
of this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Section 11322(b) of Pub. L. 101-508 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendment made by subsection (a) [amending this section] shall
apply to stock issued after October 9, 1990.
"(2) Exception. - The amendment made by subsection (a) shall not
apply to any stock issued after October 9, 1990, if -
"(A) such stock is issued pursuant to a written binding
contract in effect on October 9, 1990, and at all times
thereafter before such issuance,
"(B) such stock is issued pursuant to a registration or
offering statement filed on or before October 9, 1990, with a
Federal or State agency regulating the offering or sale of
securities and such stock is issued before the date 90 days after
the date of such filing, or
"(C) such stock is issued pursuant to a plan filed on or before
October 9, 1990, in a title 11 or similar case (as defined in
section 368(a)(3)(A) of the Internal Revenue Code of 1986)."
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective, except as otherwise
provided, as if it had been included in the provision of the
Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Section 321(c) of Pub. L. 97-34 provided that: "The amendments
made by this section [amending this section] shall apply to
distributions after December 31, 1981, in taxable years ending
after such date."
EFFECTIVE DATE OF 1969 AMENDMENT
Section 421(b) of Pub. L. 91-172, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) Except as otherwise provided in this subsection, the
amendment made by subsection (a) [amending this section] shall
apply with respect to distributions (or deemed distributions) made
after January 10, 1969, in taxable years ending after such date.
"(2)(A) Section 305(b)(2) of the Internal Revenue Code of 1986
[formerly I.R.C. 1954] (as added by subsection (a)) shall not apply
to a distribution (or deemed distribution) of stock made before
January 1, 1991, with respect to stock (i) outstanding on January
10, 1969, (ii) issued pursuant to a contract binding on January 10,
1969, on the distributing corporation, (iii) which is additional
stock of that class of stock which (as of January 10, 1969) had the
largest fair market value of all classes of stock of the
corporation (taking into account only stock outstanding on January
10, 1969, or issued pursuant to a contract binding on January 10,
1969), (iv) described in subparagraph (C)(iii), or (v) issued in a
prior distribution described in clause (i), (ii), (iii), or (iv).
"(B) Subparagraph (A) shall apply only if -
"(i) the stock as to which there is a receipt of property was
outstanding on January 10, 1969 (or was issued pursuant to a
contract binding on January 10, 1969, on the distributing
corporation), and
"(ii) if such stock and any stock described in subparagraph
(A)(i) were also outstanding on January 10, 1968, a distribution
of property was made on or before January 10, 1969, with respect
to such stock, and a distribution of stock was made on or before
January 10, 1969, with respect to such stock described in
subparagraph (A)(i).
"(C) Subparagraph (A) shall cease to apply when at any time after
October 9, 1969, the distributing corporation issues any of its
stock (other than in a distribution of stock with respect to stock
of the same class) which is not -
"(i) nonconvertible preferred stock.
"(ii) additional stock of that class of stock which meets the
requirements of subparagraph (A)(iii), or
"(iii) preferred stock which is convertible into stock which
meets the requirements of subparagraph (A)(iii) at a fixed
conversion ratio which takes account of all stock dividends and
stock splits with respect to the stock into which such
convertible stock is convertible.
"(D) For purposes of this paragraph, the term 'stock' includes
rights to acquire such stock.
"(3) In cases to which Treasury Decision 6990 (promulgated
January 10, 1969) would not have applied, in applying paragraphs
(1) and (2) April 22, 1969, shall be substituted for January 10,
1969.
"(4) Section 305(b)(4) of the Internal Revenue Code of 1986 (as
added by subsection (a)) shall not apply to any distribution (or
deemed distribution) with respect to preferred stock (including any
increase in the conversion ratio of convertible stock) made before
January 1, 1991, pursuant to the terms relating to the issuance of
such stock which were in effect on January 10, 1969.
"(5) With respect to distributions made or considered as made
after January 10, 1969, in taxable years ending after such date, to
the extent that the amendment made by subsection (a) [amending this
section] does not apply by reason of paragraph (2), (3), or (4) of
this subsection, section 305 of the Internal Revenue Code of 1986
(as in effect before the amendment made by subsection (a)) shall
continue to apply."
SAVINGS PROVISION
For provisions that nothing in amendment by section 11801(a)(17),
(c)(7) of Pub. L. 101-508 be construed to affect treatment of
certain transactions occurring, property acquired, or items of
income, loss, deduction, or credit taken into account prior to Nov.
5, 1990, for purposes of determining liability for tax for periods
ending after Nov. 5, 1990, see section 11821(b) of Pub. L. 101-508,
set out as a note under section 29 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 167, 306, 307, 312, 424
of this title.
-End-
-CITE-
26 USC Sec. 306 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART I - DISTRIBUTIONS BY CORPORATIONS
Subpart A - Effects on Recipients
-HEAD-
Sec. 306. Dispositions of certain stock
-STATUTE-
(a) General rule
If a shareholder sells or otherwise disposes of section 306 stock
(as defined in subsection (c)) -
(1) Dispositions other than redemptions
If such disposition is not a redemption (within the meaning of
section 317(b)) -
(A) The amount realized shall be treated as ordinary income.
This subparagraph shall not apply to the extent that -
(i) the amount realized, exceeds
(ii) such stock's ratable share of the amount which would
have been a dividend at the time of distribution if (in lieu
of section 306 stock) the corporation had distributed money
in an amount equal to the fair market value of the stock at
the time of distribution.
(B) Any excess of the amount realized over the sum of -
(i) the amount treated under subparagraph (A) as ordinary
income, plus
(ii) the adjusted basis of the stock,
shall be treated as gain from the sale of such stock.
(C) No loss shall be recognized.
(D) Treatment as dividend. - For purposes of section 1(h)(11)
and such other provisions as the Secretary may specify, any
amount treated as ordinary income under this paragraph shall be
treated as a dividend received from the corporation.
(2) Redemption
If the disposition is a redemption, the amount realized shall
be treated as a distribution of property to which section 301
applies.
(b) Exceptions
Subsection (a) shall not apply -
(1) Termination of shareholder's interest, etc.
(A) Not in redemption
If the disposition -
(i) is not a redemption;
(ii) is not, directly or indirectly, to a person the
ownership of whose stock would (under section 318(a)) be
attributable to the shareholder; and
(iii) terminates the entire stock interest of the
shareholder in the corporation (and for purposes of this
clause, section 318(a) shall apply).
(B) In redemption
If the disposition is a redemption and paragraph (3) or (4)
of section 302(b) applies.
(2) Liquidations
If the section 306 stock is redeemed in a distribution in
complete liquidation to which part II (sec. 331 and following)
applies.
(3) Where gain or loss is not recognized
To the extent that, under any provision of this subtitle, gain
or loss to the shareholder is not recognized with respect to the
disposition of the section 306 stock.
(4) Transactions not in avoidance
If it is established to the satisfaction of the Secretary -
(A) that the distribution, and the disposition or redemption,
or
(B) in the case of a prior or simultaneous disposition (or
redemption) of the stock with respect to which the section 306
stock disposed of (or redeemed) was issued, that the
disposition (or redemption) of the section 306 stock,
was not in pursuance of a plan having as one of its principal
purposes the avoidance of Federal income tax.
(c) Section 306 stock defined
(1) In general
For purposes of this subchapter, the term "section 306 stock"
means stock which meets the requirements of subparagraph (A),
(B), or (C) of this paragraph.
(A) Distributed to seller
Stock (other than common stock issued with respect to common
stock) which was distributed to the shareholder selling or
otherwise disposing of such stock if, by reason of section
305(a), any part of such distribution was not includible in the
gross income of the shareholder.
(B) Received in a corporate reorganization or separation
Stock which is not common stock and -
(i) which was received, by the shareholder selling or
otherwise disposing of such stock, in pursuance of a plan of
reorganization (within the meaning of section 368(a)), or in
a distribution or exchange to which section 355 (or so much
of section 356 as relates to section 355) applied, and
(ii) with respect to the receipt of which gain or loss to
the shareholder was to any extent not recognized by reason of
part III, but only to the extent that either the effect of
the transaction was substantially the same as the receipt of
a stock dividend, or the stock was received in exchange for
section 306 stock.
For purposes of this section, a receipt of stock to which the
foregoing provisions of this subparagraph apply shall be
treated as a distribution of stock.
(C) Stock having transferred or substituted basis
Except as otherwise provided in subparagraph (B), stock the
basis of which (in the hands of the shareholder selling or
otherwise disposing of such stock) is determined by reference
to the basis (in the hands of such shareholder or any other
person) of section 306 stock.
(2) Exception where no earnings and profits
For purposes of this section, the term "section 306 stock" does
not include any stock no part of the distribution of which would
have been a dividend at the time of the distribution if money had
been distributed in lieu of the stock.
(3) Certain stock acquired in section 351 exchange
The term "section 306 stock" also includes any stock which is
not common stock acquired in an exchange to which section 351
applied if receipt of money (in lieu of the stock) would have
been treated as a dividend to any extent. Rules similar to the
rules of section 304(b)(2) shall apply -
(A) for purposes of the preceding sentence, and
(B) for purposes of determining the application of this
section to any subsequent disposition of stock which is section
306 stock by reason of an exchange described in the preceding
sentence.
(4) Application of attribution rules for certain purposes
For purposes of paragraphs (1)(B)(ii) and (3), section 318(a)
shall apply. For purposes of applying the preceding sentence to
paragraph (3), the rules of section 304(c)(3)(B) shall apply.
(d) Stock rights
For purposes of this section -
(1) stock rights shall be treated as stock, and
(2) stock acquired through the exercise of stock rights shall
be treated as stock distributed at the time of the distribution
of the stock rights, to the extent of the fair market value of
such rights at the time of the distribution.
(e) Convertible stock
For purposes of subsection (c) -
(1) if section 306 stock was issued with respect to common
stock and later such section 306 stock is exchanged for common
stock in the same corporation (whether or not such exchange is
pursuant to a conversion privilege contained in the section 306
stock), then (except as provided in paragraph (2)) the common
stock so received shall not be treated as section 306 stock; and
(2) common stock with respect to which there is a privilege of
converting into stock other than common stock (or into property),
whether or not the conversion privilege is contained in such
stock, shall not be treated as common stock.
(f) Source of gain
The amount treated under subsection (a)(1)(A) as ordinary income
shall, for purposes of part I of subchapter N (sec. 861 and
following, relating to determination of sources of income), be
treated as derived from the same source as would have been the
source if money had been received from the corporation as a
dividend at the time of the distribution of such stock. If under
the preceding sentence such amount is determined to be derived from
sources within the United States, such amount shall be considered
to be fixed or determinable annual or periodical gains, profits,
and income within the meaning of section 871(a) or section 881(a),
as the case may be.
(g) Change in terms and conditions of stock
If a substantial change is made in the terms and conditions of
any stock, then, for purposes of this section -
(1) the fair market value of such stock shall be the fair
market value at the time of the distribution or at the time of
such change, whichever such value is higher;
(2) such stock's ratable share of the amount which would have
been a dividend if money had been distributed in lieu of stock
shall be determined as of the time of distribution or as of the
time of such change, whichever such ratable share is higher; and
(3) subsection (c)(2) shall not apply unless the stock meets
the requirements of such subsection both at the time of such
distribution and at the time of such change.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 90; Pub. L. 94-455, title XIX,
Secs. 1901(b)(3)(J), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1793,
1834; Pub. L. 95-600, title VII, Sec. 702(a)(1), (2), Nov. 6, 1978,
92 Stat. 2925; Pub. L. 96-223, title IV, Sec. 401(a), Apr. 2, 1980,
94 Stat. 299; Pub. L. 97-248, title II, Secs. 222(e)(1)(A), (2),
226(b), 227(a), Sept. 3, 1982, 96 Stat. 480, 492; Pub. L. 98-369,
div. A, title VII, Sec. 712(i)(2), (l)(5)(B), (6), July 18, 1984,
98 Stat. 948, 954; Pub. L. 101-508, title XI, Sec. 11801(a)(18),
Nov. 5, 1990, 104 Stat. 1388-521; Pub. L. 108-27, title III, Sec.
302(e)(3), May 28, 2003, 117 Stat. 763.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 303 of Pub. L. 108-27,
see Effective and Termination Dates of 2003 Amendment note below.
-MISC1-
AMENDMENTS
2003 - Subsec. (a)(1)(D). Pub. L. 108-27, Secs. 302(e)(3), 303,
temporarily added subpar. (D). See Effective and Termination Dates
of 2003 Amendment note below.
1990 - Subsec. (h). Pub. L. 101-508 struck out subsec. (h) which
related to stock received in distributions and reorganizations to
which 1939 Code applied.
1984 - Subsec. (b)(1). Pub. L. 98-369, Sec. 712(i)(2),
substituted "interest, etc." for "interest" in heading.
Subsec. (c)(3). Pub. L. 98-369, Sec. 712(l)(6), incorporated
existing second sentence in provision designated subpar. (A) and
added subpar. (B).
Subsec. (c)(4). Pub. L. 98-369, Sec. 712(l)(5)(B), substituted
"the rules of section 304(c)(3)(B) shall apply" for "sections
318(a)(2)(C) and 318(a)(3)(C) shall be applied without regard to
the 50 percent limitation contained therein".
1982 - Subsec. (b)(1)(B). Pub. L. 97-248, Sec. 222(e)(2),
substituted "paragraph (3) or (4) of section 302(b)" for "section
302(b)(3)".
Subsec. (b)(2). Pub. L. 97-248, Sec. 222(e)(1)(A), struck out
"partial or" before "complete liquidation".
Subsec. (c)(3). Pub. L. 97-248, Sec. 226(b), added par. (3).
Subsec. (c)(4). Pub. L. 97-248, Sec. 227(a), added par. (4).
1980 - Subsecs. (a)(3), (b)(5). Pub. L. 96-223 repealed the
amendments made by Pub. L. 95-600, Sec. 702(a)(1), (2). See 1978
Amendment notes below.
1978 - Subsec. (a)(3). Pub. L. 95-600, Sec. 702(a)(1), added par.
(3) which related to ordinary income from the sale or redemption of
section 306 stock which was carryover basis property adjusted for
1976 value. See Repeals note below.
Subsec. (b)(5). Pub. L. 95-600, Sec. 702(a)(2), added par. (5)
which provided that subsec. (a) of this section shall not apply to
the extent that section 303 applies to a distribution in redemption
of section 306 stock. See Repeals note below.
1976 - Subsec. (a)(1)(A), (B)(i). Pub. L. 94-455, Sec.
1901(b)(3)(J), substituted "ordinary income" for "gain from the
sale of property which is not a capital asset".
Subsec. (b)(4). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out
"or his delegate" after "Secretary".
Subsec. (f). Pub. L. 94-455, Sec. 1901(b)(3)(J), substituted
"ordinary income" for "gain from the sale of property which is not
a capital asset".
EFFECTIVE AND TERMINATION DATES OF 2003 AMENDMENT
Amendment by Pub. L. 108-27 applicable, except as otherwise
provided, to taxable years beginning after Dec. 31, 2002, see
section 302(f) of Pub. L. 108-27, set out as a note under section 1
of this title.
Amendment by Pub. L. 108-27 inapplicable to taxable years
beginning after Dec. 31, 2008, and the Internal Revenue Code of
1986 to be applied and administered to such years as if such
amendment had never been enacted, see section 303 of Pub. L.
108-27, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 effective as if included in the
provision of the Tax Equity and Fiscal Responsibility Act of 1982,
Pub. L. 97-248, to which such amendment relates, see section 715 of
Pub. L. 98-369, set out as a note under section 31 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by section 222(e)(1)(A), (2) of Pub. L. 97-248
applicable to distributions after Aug. 31, 1982, with exceptions
for certain partial liquidations, see section 222(f) of Pub. L.
97-248, set out as a note under section 302 of this title.
Amendment by section 226(b) of Pub. L. 97-248 applicable to
transfers occurring after Aug. 31, 1982, except for certain
transfers pursuant to an application to form a BHC filed with the
Federal Reserve Board before Aug. 16, 1982, see section 226(c) of
Pub. L. 97-248, set out as a note under section 304 of this title.
Section 227(c)(1) of Pub. L. 97-248 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to stock
received after August 31, 1982, in taxable years ending after such
date."
EFFECTIVE DATE OF 1980 AMENDMENT AND REVIVAL OF PRIOR LAW
Amendment by Pub. L. 96-223 (repealing section 702(a)(1), (2) of
Pub. L. 95-600 and the amendments made thereby, which had amended
this section) applicable in respect of decedents dying after Dec.
31, 1976, and, except for certain elections, this title to be
applied and administered as if those repealed provisions had not
been enacted, see section 401(b), (e) of Pub. L. 96-223, set out as
a note under section 1023 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Section 702(a)(3) of Pub. L. 95-600 provided that the amendments
made by section 702(a) of Pub. L. 95-600 would apply to the estates
of decedents dying after Dec. 31, 1979, prior to repeal by Pub. L.
96-223, title IV, Sec. 401(a), Apr. 2, 1980, 94 Stat. 299.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(b)(3)(J) of Pub. L. 94-455 effective
for taxable years beginning after Dec. 31, 1976, see section
1901(d) of Pub. L. 94-455, set out as a note under section 2 of
this title.
REPEALS
Pub. L. 95-600, Sec. 702(a)(1), (2), cited as a credit to this
section, and the amendments made thereby, were repealed by Pub. L.
96-223, title IV, Sec. 401(a), Apr. 2, 1980, 94 Stat. 299,
resulting in the text of this section reading as it read prior to
enactment of section 702(a)(1), (2). See Effective Date of 1980
Amendment and Revival of Prior Law note above.
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 29 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 302, 318, 356 of this
title.
-End-
-CITE-
26 USC Sec. 307 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART I - DISTRIBUTIONS BY CORPORATIONS
Subpart A - Effects on Recipients
-HEAD-
Sec. 307. Basis of stock and stock rights acquired in distributions
-STATUTE-
(a) General rule
If a shareholder in a corporation receives its stock or rights to
acquire its stock (referred to in this subsection as "new stock")
in a distribution to which section 305(a) applies, then the basis
of such new stock and of the stock with respect to which it is
distributed (referred to in this section as "old stock"),
respectively, shall, in the shareholder's hands, be determined by
allocating between the old stock and the new stock the adjusted
basis of the old stock. Such allocation shall be made under
regulations prescribed by the Secretary.
(b) Exception for certain stock rights
(1) In general
If -
(A) a corporation distributes rights to acquire its stock to
a shareholder in a distribution to which section 305(a)
applies, and
(B) the fair market value of such rights at the time of the
distribution is less than 15 percent of the fair market value
of the old stock at such time,
then subsection (a) shall not apply and the basis of such rights
shall be zero, unless the taxpayer elects under paragraph (2) of
this subsection to determine the basis of the old stock and of
the stock rights under the method of allocation provided in
subsection (a).
(2) Election
The election referred to in paragraph (1) shall be made in the
return filed within the time prescribed by law (including
extensions thereof) for the taxable year in which such rights
were received. Such election shall be made in such manner as the
Secretary may by regulations prescribe, and shall be irrevocable
when made.
(c) Cross reference
For basis of stock and stock rights distributed before June
22, 1954, see section 1052.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 93; Pub. L. 94-455, title XIX,
Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834.)
-MISC1-
AMENDMENTS
1976 - Subsecs. (a), (b)(2). Pub. L. 94-455 struck out "or his
delegate" after "Secretary".
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 312, 1223 of this title.
-End-
-CITE-
26 USC Subpart B - Effects on Corporation 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART I - DISTRIBUTIONS BY CORPORATIONS
Subpart B - Effects on Corporation
-HEAD-
SUBPART B - EFFECTS ON CORPORATION
-MISC1-
Sec.
311. Taxability of corporation on distribution.
312. Effect on earnings and profits.
-End-
-CITE-
26 USC Sec. 311 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART I - DISTRIBUTIONS BY CORPORATIONS
Subpart B - Effects on Corporation
-HEAD-
Sec. 311. Taxability of corporation on distribution
-STATUTE-
(a) General rule
Except as provided in subsection (b), no gain or loss shall be
recognized to a corporation on the distribution (not in complete
liquidation) with respect to its stock of -
(1) its stock (or rights to acquire its stock), or
(2) property.
(b) Distributions of appreciated property
(1) In general
If -
(A) a corporation distributes property (other than an
obligation of such corporation) to a shareholder in a
distribution to which subpart A applies, and
(B) the fair market value of such property exceeds its
adjusted basis (in the hands of the distributing corporation),
then gain shall be recognized to the distributing corporation as
if such property were sold to the distributee at its fair market
value.
(2) Treatment of liabilities
Rules similar to the rules of section 336(b) shall apply for
purposes of this subsection.
(3) Special rule for certain distributions of partnership or
trust interests
If the property distributed consists of an interest in a
partnership or trust, the Secretary may by regulations provide
that the amount of the gain recognized under paragraph (1) shall
be computed without regard to any loss attributable to property
contributed to the partnership or trust for the principal purpose
of recognizing such loss on the distribution.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 94; Pub. L. 91-172, title IX,
Sec. 905(a), (b)(1), Dec. 30, 1969, 83 Stat. 713, 714; Pub. L.
94-452, Sec. 2(b), Oct. 2, 1976, 90 Stat. 1511; Pub. L. 94-455,
title XIX, Sec. 1901(a)(42)(A), (B)(i), (C), Oct. 4, 1976, 90 Stat.
1771; Pub. L. 95-600, title VII, Sec. 703(j)(2)(A), (B), Nov. 6,
1978, 92 Stat. 2941; Pub. L. 96-471, Sec. 2(b)(1), Oct. 19, 1980,
94 Stat. 2253; Pub. L. 97-248, title II, Sec. 223(a), Sept. 3,
1982, 96 Stat. 483; Pub. L. 98-369, div. A, title I, Sec. 54(a),
title VII, Sec. 712(j), July 18, 1984, 98 Stat. 568, 948; Pub. L.
99-514, title VI, Sec. 631(c), Oct. 22, 1986, 100 Stat. 2272; Pub.
L. 100-647, title I, Secs. 1006(e)(8)(B), (21)(B), 1018(d)(5)(E),
Nov. 10, 1988, 102 Stat. 3401, 3403, 3580.)
-MISC1-
AMENDMENTS
1988 - Subsec. (a). Pub. L. 100-647, Sec. 1018(d)(5)(E),
substituted "distribution (not in complete liquidation) with
respect to its stock" for "distribution, with respect to its
stock,".
Subsec. (b)(2). Pub. L. 100-647, Sec. 1006(e)(21)(B), substituted
"liabilities" for "liabilities in excess of basis" in heading.
Subsec. (b)(3). Pub. L. 100-647, Sec. 1006(e)(8)(B), added par.
(3).
1986 - Pub. L. 99-514 amended section generally, substituting
provisions relating to distributions of appreciated property for
provisions relating to LIFO inventory, liability in excess of
basis, and appreciated property used to redeem stock.
1984 - Subsec. (d). Pub. L. 98-369, Sec. 54(a)(3), substituted
"Distributions of appreciated property" for "Appreciated property
used to redeem stock" in heading.
Subsec. (d)(1). Pub. L. 98-369, Sec. 54(a)(1), substituted "This
subsection shall be applied after the applications of subsections
(b) and (c)" for "Subsections (b) and (c) shall not apply to any
distribution to which this subsection applies" in provisions
following subpar. (B).
Subsec. (d)(1)(A). Pub. L. 98-369, Sec. 54(a)(1), struck out "of
part or all of his stock in such corporation" before "and".
Subsec. (d)(2)(A). Pub. L. 98-369, Sec. 54(a)(2)(A), substituted
provisions relating to a distribution which is made with respect to
qualified stock if section 302(b)(4) applies to such distribution
or such distribution is a qualified distribution for provisions
which had related to a distribution to a corporate shareholder if
the basis of the property distributed was determined under section
301(d)(2).
Subsec. (d)(2)(B) to (F). Pub. L. 98-369, Sec. 54(a)(2)(A), (B),
redesignated subpars. (C) to (F) as (B) to (E), respectively, and
struck out former subpar. (B) which related to distributions to
which section 302(b)(4) applied and which were made with respect to
qualified stock.
Subsec. (e)(1)(C). Pub. L. 98-369, Sec. 712(j), added subpar.
(C).
Subsec. (e)(3). Pub. L. 98-369, Sec. 54(a)(2)(C), added par. (3).
1982 - Subsec. (d)(2)(A). Pub. L. 97-248, Sec. 223(a)(1),
substituted reference to a distribution to a corporate shareholder
if the basis of the property distributed is determined under
section 301(d)(2) for reference to a distribution in complete
redemption of all of the stock of a shareholder who, at all times
within the 12-month period ending on the date of such distribution
owned at least 10 percent in value of the outstanding stock of the
distributing corporation, but only if the redemption qualified
under section 302(b)(3) (determined without the application of
section 302(c)(2)(A)(ii)).
Subsec. (d)(2)(B). Pub. L. 97-248, Sec. 223(a)(1), substituted
reference to a distribution to which section 302(b)(4) applies and
which is made with respect to qualified stock for reference to a
distribution of stock or an obligation of a corporation, which was
engaged in at least one trade or business, which had not received
property constituting a substantial part of its assets from the
distributing corporation, in a transaction to which section 351
applied or as a contribution to capital, within the 5-year period
ending on the date of the distribution, and at least 50 percent in
value of the outstanding stock of which was owned by the
distributing corporation at any time within the 9-year period
ending one year before the date of the distribution.
Subsec. (d)(2)(C). Pub. L. 97-248, Sec. 223(a)(1), substituted
reference to a distribution of stock or an obligation of a
corporation if the requirements of subsec. (e)(2) of this section
are met with respect to the distribution for reference to a
distribution of stock or securities pursuant to the terms of a
final judgment rendered by a court with respect to the distributing
corporation in a court proceeding under the Sherman Act (15 U.S.C.
1-7) or the Clayton Act (15 U.S.C. 12-27), or both, to which the
United States was a party, but only if the distribution of such
stock or securities in redemption of the distributing corporation's
stock was in furtherance of the purposes of the judgment.
Subsec. (d)(2)(G). Pub. L. 97-248, Sec. 223(a)(3), struck out
subpar. (G) which provided that a distribution of stock to a
distributee which is not an organization exempt from tax under
section 501(a) of this title, if with respect to such distributee,
subsec. (a)(1) or (b)(1) of section 1101 of this title applied to
such distribution.
Subsec. (e). Pub. L. 97-248, Sec. 223(a)(2), added subsec. (e).
1980 - Subsec. (a). Pub. L. 96-471 substituted "section 453B" for
"Section 453(d)".
1978 - Subsec. (d)(2)(G), (H). Pub. L. 95-600 redesignated
subpar. (H) as (G).
1976 - Subsec. (d)(1)(B). Pub. L. 94-455, Sec. 1901(a) (42)(A),
substituted "then a gain shall be recognized" for "then again shall
be recognized".
Subsec. (d)(2). Pub. L. 94-452 and Pub. L. 94-455 Sec.
1901(a)(42)(B)(i), (C), struck out subpar. (C) relating to certain
distributions before Dec. 1, 1974, struck out "26 Stat. 209;"
before "15 U.S.C. 1-7)" and "38 Stat. 730;" before "15 U.S.C.
12-27)" in subpar. (D), added subpar. (H), and redesignated
subpars. (D) to (G), as so amended, as subpars. (C) to (F),
respectively.
1969 - Subsec. (a). Pub. L. 91-172, Sec. 905(b)(1), inserted
reference to subsec. (d).
Subsec. (d). Pub. L. 91-172, Sec. 905(a), added subsec. (d).
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to any distribution in
complete liquidation, and any sale or exchange, made by a
corporation after July 31, 1986, unless such corporation is
completely liquidated before Jan. 1, 1987, any transaction
described in section 338 of this title for which the acquisition
date occurs after Dec. 31, 1986, and any distribution, not in
complete liquidation, made after Dec. 31, 1986, with exceptions and
special and transitional rules, see section 633 of Pub. L. 99-514,
set out as an Effective Date note under section 336 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 54(d) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, title XVIII, Sec. 1804(b)(3), Oct. 22, 1986, 100 Stat.
2095, 2799; Pub. L. 100-647, title I, Sec. 1018(d)(1)-(3), Nov. 10,
1988, 102 Stat. 3578, provided that:
"(1) Subsection (a). - Except as otherwise provided in this
subsection, the amendments made by subsection (a) [amending this
section] shall apply to distributions declared on or after June 14,
1984, in taxable years ending after such date.
"(2) Subsection (b). - The amendment made by subsection (b)
[amending section 301 of this title] shall apply to distributions
after the date of the enactment of this Act [July 18, 1984] in
taxable years ending after such date.
"(3) Exception for distributions before january 1, 1985, to
80-percent corporate shareholders. -
"(A) In general. - The amendments made by subsection (a) shall
not apply to any distribution before January 1, 1985, to an
80-percent corporate shareholder if the basis of the property
distributed is determined under section 301(d)(2) of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954].
"(B) 80-percent corporate shareholder. - The term '80-percent
corporate shareholder' means, with respect to any distribution,
any corporation which owns -
"(i) stock in the corporation making the distribution
possessing at least 80 percent of the total combined voting
power of all classes of stock entitled to vote, and
"(ii) at least 80 percent of the total number of shares of
all other classes of stock of the distributing corporation
(except nonvoting stock which is limited and preferred as to
dividends).
"(C) Special rule for affiliated group filing consolidated
return. - For purposes of this paragraph and paragraph (4), all
members of the same affiliated group (as defined in section 1504
of the Internal Revenue Code of 1986) which file a consolidated
return for the taxable year which includes the date of the
distribution shall be treated as 1 corporation.
"(D) Special rule for certain distributions before january 1,
1988. -
"(i) In general. - In the case of a transaction to which this
subparagraph applies, subparagraph (A) shall be applied by
substituting '1988' for '1985' and the amendments made by
subtitle D of title VI of the Tax Reform Act of 1986 [sections
631 to 634 of Pub. L. 99-514, enacting sections 336 and 337 of
this title, amending this section and sections 26, 312, 332,
334, 338, 341, 346, 367, 453, 453B, 467, 852, 897, 1056, 1248,
1255, 1276, 1363, 1366, 1374, and 1375 of this title, repealing
sections 333, 336, and 337 of this title, and enacting
provisions set out as a note under section 301 of this title]
shall not apply.
"(ii) Transaction to which subparagaph [sic] applies. - This
subparagraph appies [applies] to a transaction in which a
Delaware corporation which was incorporated on May 31, 1927,
and which was acquired by the transferee on December 10, 1968,
transfers to the transferee stock in a corporation -
"(I) with respect to which such Delaware corporation is a
100-percent corporate shareholder, and
"(II) which is a Tennessee corporation which was
incorporated on March 2, 1978,, [sic] and which is a
successor to an Indiana corporation which was incorporated on
June 28, 1946, and acquired by the transferee on December 9
[10], 1968.
"(4) Exception for certain distributions where tender offer
commenced on may 23, 1984. -
"(A) In general. - The amendments made by subsection (a) shall
not apply to any distribution made before September 1, 1986, if -
"(i) such distribution consists of qualified stock held
(directly or indirectly) on June 15, 1984, by the distributing
corporation,
"(ii) control of the distributing corporation (as defined in
section 368(c) of the Internal Revenue Code of 1986) is
acquired other than in a tax-free transaction after January 1,
1984, but before January 1, 1985,
"(iii) a tender offer for the shares of the distributing
corporation was commenced on May 23, 1984, and was amended on
May 24, 1984, and
"(iv) the distributing corporation and the distributee
corporation are members of the same affiliated group (as
defined in section 1504 of such Code) which filed a
consolidated return for the taxable year which includes the
date of the distribution.
If the common parent of any affiliated group filing a consolidated
return meets the requirements of clauses (ii) and (iii), each other
member of such group shall be treated as meeting such requirements.
"(B) Qualified stock. - For purposes of subparagraph (A), the
term 'qualified stock' means any stock in a corporation which on
June 15, 1984, was a member of the same affiliated group as the
distributing corporation and which filed a consolidated return
with the distributing corporation for the taxable year which
included June 15, 1984.
"(5) Exception for certain distributions. -
"(A) In general. - The amendments made by this section
[amending this section and sections 301 and 1223 of this title]
shall not apply to distributions before February 1, 1986, if -
"(i) the distribution consists of property held on March 7,
1984 (or property acquired thereafter in the ordinary course of
a trade or business) by -
"(I) the controlled corporation, or
"(II) any subsidiary controlled corporation,
"(ii) a group of 1 or more shareholders (acting in concert) -
"(I) acquired, during the 1-year period ending on February
1, 1984, at least 10 percent of the outstanding stock of the
controlled corporation,
"(II) held at least 10 percent of the outstanding stock of
the common parent on February 1, 1984, and
"(III) submitted a proposal for distributions of interests
in a royalty trust from the common parent or the controlled
corporation, and
"(iii) the common parent acquired control of the controlled
corporation during the 1-year period ending on February 1,
1984.
"(B) Definitions. - For purposes of this paragraph -
"(i) The term 'common parent' has the meaning given such term
by section 1504(a) of the Internal Revenue Code of 1986.
"(ii) The term 'controlled corporation' means a corporation
with respect to which 50 percent or more of the outstanding
stock of its common parent is tendered for pursuant to a tender
offer outstanding on March 7, 1984.
"(iii) The term 'subsidiary controlled corporation' means any
corporation with respect to which the controlled corporation
has control (within the meaning of section 368(c) of such Code)
on March 7, 1984.
"(6) Exception for certain distribution of partnership interests.
- The amendments made by this section shall not apply to any
distribution before February 1, 1986, of an interest in a
partnership the interests of which were being traded on a national
securities exchange on March 7, 1984, if -
"(A) such interest was owned by the distributing corporation
(or any member of an affiliated group within the meaning of
section 1504(a) of such Code of which the distributing
corporation was a member) on March 7, 1984,
"(B) the distributing corporation (or any such affiliated
member) owned more than 80 percent of the interests in such
partnership on March 7, 1984, and
"(C) more than 10 percent of the interests in such partnership
was offered for sale to the public during the 1-year period
ending on March 7, 1984."
Amendment by section 712(j) of Pub. L. 98-369 effective as if
included in the provision of the Tax Equity and Fiscal
Responsibility Act of 1982, Pub. L. 97-248, to which such amendment
relates, see section 715 of Pub. L. 98-369, set out as a note under
section 31 of this title.
EFFECTIVE DATE OF 1982 AMENDMENTS; EXCEPTIONS
Section 223(b) of Pub. L. 97-248, as amended by Pub. L. 97-448,
title III, Sec. 306(a)(7), Jan. 12, 1983, 96 Stat. 2402; Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section [amending this
section] shall apply to distributions after August 31, 1982.
"(2) Distributions pursuant to ruling requests before july 23,
1982. - In the case of a ruling request under section 311(d)(2)(A)
of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as in
effect before the amendments made by this section) made before July
23, 1982, the amendments made by this section [amending this
section] shall not apply to distributions made -
"(A) pursuant to a ruling granted pursuant to such request, and
"(B) either before October 21, 1982, or within 90 days after
the date of such ruling.
"(3) Distributions pursuant to final judgments of court. - In the
case of a final judgment described in section 311(d)(2)(C) of such
Code (as in effect before the amendments made by this section)
rendered before July 23, 1982, the amendments made by this section
[amending this section] shall not apply to distributions made
before January 1, 1986, pursuant to such judgment.
"(4) Certain distributions with respect to stock acquired before
may 1982. - The amendments made by this section [amending this
section] shall not apply to distributions -
"(A) which meet the requirements of section 311(d)(2)(A) of
such Code (as in effect on the day before the date of the
enactment of this Act [Sept. 3, 1982]),
"(B) which are made on or before August 31, 1983, and
"(C) which are made with respect to stock acquired after 1980
and before May 1982.
"(5) Distributions of timberland with respect to stock of forest
products company. - If -
"(A) a forest products company distributes timberland to a
shareholder in redemption of the common and preferred stock in
such corporation held by such shareholder,
"(B) section 311(d)(2)(A) of the Internal Revenue Code of 1986
(as in effect before the amendments made by this section) would
have applied to such distributions, and
"(C) such distributions are made pursuant to 1 of 2 options
contained in a contract between such company and such shareholder
which is binding on August 31, 1982, and at all times thereafter,
then such distributions of timberland having an aggregate fair
market value on August 31, 1982, not in excess of $10,000,000 shall
be treated as distributions to which section 311(d)(2)(A) of such
Code (as in effect before the date of the enactment of this Act
[Sept. 3, 1982] applies."
EFFECTIVE DATE OF 1980 AMENDMENT
For effective date of amendment by Pub. L. 96-471, see section
6(a)(1) of Pub. L. 96-471, set out as an Effective Date note under
section 453 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Section 703(j)(2)(C) of Pub. L. 95-600 provided that: "The
amendments made by this paragraph [amending this section] shall
take effect as if included in section 2(b) of the Bank Holding
Company Tax Act of 1976 [amending this section]."
EFFECTIVE DATE OF 1976 AMENDMENTS
Amendment by section 1901(a)(42)(A), (C) of Pub. L. 94-455
effective for taxable years beginning after Dec. 31, 1976, see
section 1901(d) of Pub. L. 94-455, set out as a note under section
2 of this title.
Section 1901(a)(42)(B)(ii) of Pub. L. 94-455 provided that: "The
amendments made by clause (i) [amending this section] shall apply
only with respect to distributions after November 30, 1974."
Section 2(d)(4) of Pub. L. 94-452 provided that: "The amendment
made by subsection (b) [amending this section] shall take effect on
October 1, 1977, with respect to distributions after December 31,
1975, in taxable years ending after December 31, 1975."
EFFECTIVE DATE OF 1969 AMENDMENT
Section 905(c) of Pub. L. 91-172, as amended by Pub. L. 91-675,
Jan. 12, 1971, 84 Stat. 2059, provided that:
"(1) Except as provided in paragraphs (2), (3), (4), and (5), the
amendments made by subsections (a) and (b) [amending this section
and sections 301 and 312 of this title] shall apply with respect to
distributions after November 30, 1969.
"(2) The amendments made by subsections (a) and (b) shall not
apply to a distribution before April 1, 1970, pursuant to the terms
of -
"(A) a written contract which was binding on the distributing
corporation on November 30, 1969, and at all times thereafter
before the distribution,
"(B) an offer made by the distributing corporation before
December 1, 1969,
"(C) an offer made in accordance with a request for a ruling
filed by the distributing corporation with the Internal Revenue
Service before December 1, 1969, or
"(D) an offer made in accordance with a registration statement
filed with the Securities and Exchange Commission before December
1, 1969.
For purposes of subparagraphs (B), (C), and (D), an offer shall be
treated as an offer only if it was in writing and not revocable by
its express terms.
"(3) The amendments made by subsections (a) and (b) shall not
apply to a distribution by a corporation of specific property in
redemption of stock outstanding on November 30, 1969, if -
"(A) every holder of such stock on such date had the right to
demand redemption of his stock in such specific property, and
"(B) the corporation had such specific property on hand on such
date in a quantity sufficient to redeem all of such stock.
For purposes of the preceding sentence, stock shall be considered
to have been outstanding on November 30, 1969, if it could have
been acquired on such date through the exercise of an existing
right of conversion contained in other stock held on such date.
"(4) The amendments made by subsections (a) and (b) shall not
apply to a distribution by a corporation of property (held on
December 1, 1969, by the distributing corporation or a corporation
which was a wholly owned subsidiary of the distributing corporation
on such date) in redemption of stock outstanding on November 30,
1969, which is redeemed and canceled before July 31, 1971, if -
"(A) such redemption is pursuant to a resolution adopted before
November 1, 1969, by the Board of Directors authorizing the
redemption of a specific amount of stock constituting more than
10 percent of the outstanding stock of the corporation at the
time of the adoption of such resolution; and
"(B) more than 40 percent of the stock authorized to be
redeemed pursuant to such resolution was redeemed before December
30, 1969, and more than one-half of the stock so redeemed was
redeemed with property other than money.
"(5) The amendments made by subsections (a) and (b) shall not
apply to a distribution of stock, by a corporation organized prior
to December 1, 1969, for the principal purpose of providing an
equity participation plan for employees of the corporation whose
stock is being distributed (hereinafter referred to as the
'employer corporation') if -
"(A) the stock being distributed was owned by the distributing
corporation on November 30, 1969,
"(B) the stock being redeemed was acquired before January 1,
1973, pursuant to such equity participation plan by the
shareholder presenting such stock for redemption (or by a
predecessor of such shareholder),
"(C) the employment of the shareholder presenting the stock for
redemption (or the predecessor of such shareholder) by the
employer corporation commenced before January 1, 1971,
"(D) at least 90 percent in value of the assets of the
distributing corporation on November 30, 1969, consisted of
common stock of the employer corporation, and
"(E) at least 50 percent of the outstanding voting stock of the
employer corporation is owned by the distributing corporation at
any time within the nine-year period ending one year before the
date of such distribution."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 351, 355, 361, 646, 852,
1248 of this title.
-End-
-CITE-
26 USC Sec. 312 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART I - DISTRIBUTIONS BY CORPORATIONS
Subpart B - Effects on Corporation
-HEAD-
Sec. 312. Effect on earnings and profits
-STATUTE-
(a) General rule
Except as otherwise provided in this section, on the distribution
of property by a corporation with respect to its stock, the
earnings and profits of the corporation (to the extent thereof)
shall be decreased by the sum of -
(1) the amount of money,
(2) the principal amount of the obligations of such corporation
(or, in the case of obligations having original issue discount,
the aggregate issue price of such obligations), and
(3) the adjusted basis of the other property, so distributed.
(b) Distributions of appreciated property
On the distribution by a corporation, with respect to its stock,
of any property (other than an obligation of such corporation) the
fair market value of which exceeds the adjusted basis thereof -
(1) the earnings and profits of the corporation shall be
increased by the amount of such excess, and
(2) subsection (a)(3) shall be applied by substituting "fair
market value" for "adjusted basis".
For purposes of this subsection and subsection (a), the adjusted
basis of any property is its adjusted basis as determined for
purposes of computing earnings and profits.
(c) Adjustments for liabilities
In making the adjustments to the earnings and profits of a
corporation under subsection (a) or (b), proper adjustment shall be
made for -
(1) the amount of any liability to which the property
distributed is subject, and
(2) the amount of any liability of the corporation assumed by a
shareholder in connection with the distribution.
(d) Certain distributions of stock and securities
(1) In general
The distribution to a distributee by or on behalf of a
corporation of its stock or securities, of stock or securities in
another corporation, or of property, in a distribution to which
this title applies, shall not be considered a distribution of the
earnings and profits of any corporation -
(A) if no gain to such distributee from the receipt of such
stock or securities, or property, was recognized under this
title, or
(B) if the distribution was not subject to tax in the hands
of such distributee by reason of section 305(a).
(2) Prior distributions
In the case of a distribution of stock or securities, or
property, to which section 115(h) of the Internal Revenue Code of
1939 (or the corresponding provision of prior law) applied, the
effect on earnings and profits of such distribution shall be
determined under such section 115(h), or the corresponding
provision of prior law, as the case may be.
(3) Stock or securities
For purposes of this subsection, the term "stock or securities"
includes rights to acquire stock or securities.
[(e) Repealed. Pub. L. 98-369, div. A, title I, Sec. 61(a)(2)(B),
July 18, 1984, 98 Stat. 581]
(f) Effect on earnings and profits of gain or loss and of receipt
of tax-free distributions
(1) Effect on earnings and profits of gain or loss
The gain or loss realized from the sale or other disposition
(after February 28, 1913) of property by a corporation -
(A) for the purpose of the computation of the earnings and
profits of the corporation, shall (except as provided in
subparagraph (B)) be determined by using as the adjusted basis
the adjusted basis (under the law applicable to the year in
which the sale or other disposition was made) for determining
gain, except that no regard shall be had to the value of the
property as of March 1, 1913; but
(B) for purposes of the computation of the earnings and
profits of the corporation for any period beginning after
February 28, 1913, shall be determined by using as the adjusted
basis the adjusted basis (under the law applicable to the year
in which the sale or other disposition was made) for
determining gain.
Gain or loss so realized shall increase or decrease the earnings
and profits to, but not beyond, the extent to which such a
realized gain or loss was recognized in computing taxable income
under the law applicable to the year in which such sale or
disposition was made. Where, in determining the adjusted basis
used in computing such realized gain or loss, the adjustment to
the basis differs from the adjustment proper for the purpose of
determining earnings and profits, then the latter adjustment
shall be used in determining the increase or decrease above
provided. For purposes of this subsection, a loss with respect to
which a deduction is disallowed under section 1091 (relating to
wash sales of stock or securities), or the corresponding
provision of prior law, shall not be deemed to be recognized.
(2) Effect on earnings and profits of receipt of tax-free
distributions
Where a corporation receives (after February 28, 1913) a
distribution from a second corporation which (under the law
applicable to the year in which the distribution was made) was
not a taxable dividend to the shareholders of the second
corporation, the amount of such distribution shall not increase
the earnings and profits of the first corporation in the
following cases:
(A) no such increase shall be made in respect of the part of
such distribution which (under such law) is directly applied in
reduction of the basis of the stock in respect of which the
distribution was made; and
(B) no such increase shall be made if (under such law) the
distribution causes the basis of the stock in respect of which
the distribution was made to be allocated between such stock
and the property received (or such basis would, but for section
307(b), be so allocated).
(g) Earnings and profits - increase in value accrued before March
1, 1913
(1) If any increase or decrease in the earnings and profits for
any period beginning after February 28, 1913, with respect to any
matter would be different had the adjusted basis of the property
involved been determined without regard to its March 1, 1913,
value, then, except as provided in paragraph (2), an increase
(properly reflecting such difference) shall be made in that part
of the earnings and profits consisting of increase in value of
property accrued before March 1, 1913.
(2) If the application of subsection (f) to a sale or other
disposition after February 28, 1913, results in a loss which is
to be applied in decrease of earnings and profits for any period
beginning after February 28, 1913, then, notwithstanding
subsection (f) and in lieu of the rule provided in paragraph (1)
of this subsection, the amount of such loss so to be applied
shall be reduced by the amount, if any, by which the adjusted
basis of the property used in determining the loss exceeds the
adjusted basis computed without regard to the value of the
property on March 1, 1913, and if such amount so applied in
reduction of the decrease exceeds such loss, the excess over such
loss shall increase that part of the earnings and profits
consisting of increase in value of property accrued before March
1, 1913.
(h) Allocation in certain corporate separations and reorganizations
(1) Section 355
In the case of a distribution or exchange to which section 355
(or so much of section 356 as relates to section 355) applies,
proper allocation with respect to the earnings and profits of the
distributing corporation and the controlled corporation (or
corporations) shall be made under regulations prescribed by the
Secretary.
(2) Section 368(a)(1)(C) or (D)
In the case of a reorganization described in subparagraph (C)
or (D) of section 368(a)(1), proper allocation with respect to
the earnings and profits of the acquired corporation shall, under
regulations prescribed by the Secretary, be made between the
acquiring corporation and the acquired corporation (or any
corporation which had control of the acquired corporation before
the reorganization).
(i) Distribution of proceeds of loan insured by the United States
If a corporation distributes property with respect to its stock
and if, at the time of distribution -
(1) there is outstanding a loan to such corporation which was
made, guaranteed, or insured by the United States (or by any
agency or instrumentality thereof), and
(2) the amount of such loan so outstanding exceeds the adjusted
basis of the property constituting security for such loan,
then the earnings and profits of the corporation shall be increased
by the amount of such excess, and (immediately after the
distribution) shall be decreased by the amount of such excess. For
purposes of paragraph (2), the adjusted basis of the property at
the time of distribution shall be determined without regard to any
adjustment under section 1016(a)(2) (relating to adjustment for
depreciation, etc.). For purposes of this subsection, a commitment
to make, guarantee, or insure a loan shall be treated as the
making, guaranteeing, or insuring of a loan.
(j) Earnings and profits of foreign investment companies
(1) Allocation within affiliated group
In the case of a sale or exchange of stock in a foreign
investment company (as defined in section 1246(b)) by a United
States person (as defined in section 7701(a)(30)), if such
company is a member of an affiliated group, then the accumulated
earnings and profits of all members of such affiliated group
shall be allocated, under regulations prescribed by the
Secretary, in such manner as is proper to carry out the purposes
of section 1246.
(2) Affiliated group defined
For purposes of paragraph (1) of this subsection, the term
"affiliated group" has the meaning assigned to such term by
section 1504(a); except that (A) "more than 50 percent" shall be
substituted for "80 percent or more", and (B) all corporations
shall be treated as includible corporations (without regard to
the provisions of section 1504(b)).
(k) Effect of depreciation on earnings and profits
(1) General rule
For purposes of computing the earnings and profits of a
corporation for any taxable year beginning after June 30, 1972,
the allowance for depreciation (and amortization, if any) shall
be deemed to be the amount which would be allowable for such year
if the straight line method of depreciation had been used for
each taxable year beginning after June 30, 1972.
(2) Exception
If for any taxable year a method of depreciation was used by
the taxpayer which the Secretary has determined results in a
reasonable allowance under section 167(a) and which is the
unit-of-production method or other method not expressed in a term
of years, then the adjustment to earnings and profits for
depreciation for such year shall be determined under the method
so used (in lieu of the straight line method).
(3) Exception for tangible property
(A) In general
Except as provided in subparagraph (B), in the case of
tangible property to which section 168 applies, the adjustment
to earnings and profits for depreciation for any taxable year
shall be determined under the alternative depreciation system
(within the meaning of section 168(g)(2)).
(B) Treatment of amounts deductible under section 179 or 179A
For purposes of computing the earnings and profits of a
corporation, any amount deductible under section 179 or 179A
shall be allowed as a deduction ratably over the period of 5
taxable years (beginning with the taxable year for which such
amount is deductible under section 179 or 179A, as the case may
be).
(4) Certain foreign corporations
The provisions of paragraph (1) shall not apply in computing
the earnings and profits of a foreign corporation for any taxable
year for which less than 20 percent of the gross income from all
sources of such corporation is derived from sources within the
United States.
(5) Basis adjustment not taken into account
In computing the earnings and profits of a corporation for any
taxable year, the allowance for depreciation (and amortization,
if any) shall be computed without regard to any basis adjustment
under section 50(c).
(l) Discharge of indebtedness income
(1) Does not increase earnings and profits if applied to reduce
basis
The earnings and profits of a corporation shall not include
income from the discharge of indebtedness to the extent of the
amount applied to reduce basis under section 1017.
(2) Reduction of deficit in earnings and profits in certain cases
If -
(A) the interest of any shareholder of a corporation is
terminated or extinguished in a title 11 or similar case
(within the meaning of section 368(a)(3)(A)), and
(B) there is a deficit in the earnings and profits of the
corporation,
then such deficit shall be reduced by an amount equal to the
paid-in capital which is allocable to the interest of the
shareholder which is so terminated or extinguished.
(m) No adjustment for interest paid on certain
registration-required obligations not in registered form
The earnings and profits of any corporation shall not be
decreased by any interest with respect to which a deduction is not
or would not be allowable by reason of section 163(f), unless at
the time of issuance the issuer is a foreign corporation that is
not a controlled foreign corporation (within the meaning of section
957), a foreign investment company (within the meaning of section
1246(b)), or a foreign personal holding company (within the meaning
of section 552) and the issuance did not have as a purpose the
avoidance of section 163(f) of this subsection (!1)
(n) Adjustments to earnings and profits to more accurately reflect
economic gain and loss
For purposes of computing the earnings and profits of a
corporation, the following adjustments shall be made:
(1) Construction period carrying charges
(A) In general
In the case of any amount paid or incurred for construction
period carrying charges -
(i) no deduction shall be allowed with respect to such
amount, and
(ii) the basis of the property with respect to which such
charges are allocable shall be increased by such amount.
(B) Construction period carrying charges defined
For purposes of this paragraph, the term "construction period
carrying charges" means all -
(i) interest paid or accrued on indebtedness incurred or
continued to acquire, construct, or carry property,
(ii) property taxes, and
(iii) similar carrying charges,
to the extent such interest, taxes, or charges are attributable
to the construction period for such property and would be
allowable as a deduction in determining taxable income under
this chapter for the taxable year in which paid or incurred.
(C) Construction period
The term "construction period" has the meaning given the term
production period under section 263A(f)(4)(B).
(2) Intangible drilling costs and mineral exploration and
development costs
(A) Intangible drilling costs
Any amount allowable as a deduction under section 263(c) in
determining taxable income (other than costs incurred in
connection with a nonproductive well) -
(i) shall be capitalized, and
(ii) shall be allowed as a deduction ratably over the
60-month period beginning with the month in which such amount
was paid or incurred.
(B) Mineral exploration and development costs
Any amount allowable as a deduction under section 616(a) or
617 in determining taxable income -
(i) shall be capitalized, and
(ii) shall be allowed as a deduction ratably over the
120-month period beginning with the later of -
(I) the month in which production from the deposit
begins, or
(II) the month in which such amount was paid or incurred.
(3) Certain amortization provisions not to apply
Sections 173 and 248 shall not apply.
(4) LIFO inventory adjustments
(A) In general
Earnings and profits shall be increased or decreased by the
amount of any increase or decrease in the LIFO recapture amount
as of the close of each taxable year; except that any decrease
below the LIFO recapture amount as of the close of the taxable
year preceding the 1st taxable year to which this paragraph
applies to the taxpayer shall be taken into account only to the
extent provided in regulations prescribed by the Secretary.
(B) LIFO recapture amount
For purposes of this paragraph, the term "LIFO recapture
amount" means the amount (if any) by which -
(i) the inventory amount of the inventory assets under the
first-in, first-out method authorized by section 471, exceeds
(ii) the inventory amount of such assets under the LIFO
method.
(C) Definitions
For purposes of this paragraph -
(i) LIFO method
The term "LIFO method" means the method authorized by
section 472 (relating to last-in, first-out inventories).
(ii) Inventory assets
The term "inventory assets" means stock in trade of the
corporation, or other property of a kind which would properly
be included in the inventory of the corporation if on hand at
the close of the taxable year.
(iii) Inventory amount
The inventory amount of assets under the first-in,
first-out method authorized by section 471 shall be
determined -
(I) if the corporation uses the retail method of valuing
inventories under section 472, by using such method, or
(II) if subclause (I) does not apply, by using cost or
market, whichever is lower.
(5) Installment sales
In the case of any installment sale, earnings and profits shall
be computed as if the corporation did not use the installment
method.
(6) Completed contract method of accounting
In the case of a taxpayer who uses the completed contract
method of accounting, earnings and profits shall be computed as
if such taxpayer used the percentage of completion method of
accounting.
(7) Redemptions
If a corporation distributes amounts in a redemption to which
section 302(a) or 303 applies, the part of such distribution
which is properly chargeable to earnings and profits shall be an
amount which is not in excess of the ratable share of the
earnings and profits of such corporation accumulated after
February 28, 1913, attributable to the stock so redeemed.
(8) Special rule for certain foreign corporations
In the case of a foreign corporation described in subsection
(k)(4) -
(A) paragraphs (4) and (6) shall apply only in the case of
taxable years beginning after December 31, 1985, and
(B) paragraph (5) shall apply only in the case of taxable
years beginning after December 31, 1987.
(o) Definition of original issue discount and issue price for
purposes of subsection (a)(2)
For purposes of subsection (a)(2), the terms "original issue
discount" and "issue price" have the same respective meanings as
when used in subpart A of part V of subchapter P of this chapter.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 95; Pub. L. 87-403, Sec. 3(a),
Feb. 2, 1962, 76 Stat. 6; Pub. L. 87-834, Secs. 13(f)(3), 14(b)(1),
Oct. 16, 1962, 76 Stat. 1035, 1040; Pub. L. 88-272, title II, Sec.
231(b)(3), Feb. 26, 1964, 78 Stat. 105; Pub. L. 88-484, Sec.
1(b)(1), Aug. 22, 1964, 78 Stat. 597; Pub. L. 89-570, Sec. 1(b)(3),
Sept. 12, 1966, 80 Stat. 762; Pub. L. 91-172, title II, Sec.
211(b)(3), title IV, Sec. 442(a), title IX, Sec. 905(b)(2), Dec.
30, 1969, 83 Stat. 570, 628, 714; Pub. L. 94-455, title II, Sec.
205(c)(1)(D), title XIX, Secs. 1901(a)(43), (b)(32)(B)(i),
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1535, 1771, 1800, 1834; Pub.
L. 95-628, Sec. 3(c), Nov. 10, 1978, 92 Stat. 3627; Pub. L. 96-589,
Sec. 5(f), Dec. 24, 1980, 94 Stat. 3406; Pub. L. 97-34, title II,
Sec. 206(a), (b), Aug. 13, 1981, 95 Stat. 224; Pub. L. 97-248,
title II, Secs. 205(a)(3), 222(e)(3), title III, Sec. 310(b)(3),
Sept. 3, 1982, 96 Stat. 429, 480, 597; Pub. L. 97-448, title III,
Sec. 306(a)(6)(B), Jan. 12, 1983, 96 Stat. 2402; Pub. L. 98-369,
div. A, title I, Secs. 61(a)-(c)(1), 63(b), 111(e)(5), July 18,
1984, 98 Stat. 579-581, 583, 633; Pub. L. 99-121, title I, Sec.
103(b)(1)(C), Oct. 11, 1985, 99 Stat. 509; Pub. L. 99-514, title
II, Secs. 201(b), (d)(6), 241(b)(1), title VI, Sec. 631(e)(1),
title VIII, Sec. 803(b)(3), title XVIII, Secs. 1804(f)(1)(A)-(E),
1809(a)(2)(C)(ii), Oct. 22, 1986, 100 Stat. 2137, 2141, 2181, 2273,
2355, 2804, 2805, 2819; Pub. L. 100-647, title I, Secs. 1002(a)(3),
1018(d)(4), (u)(4), Nov. 10, 1988, 102 Stat. 3353, 3578, 3590; Pub.
L. 101-239, title VII, Secs. 7611(f)(5)(A), 7811(m)(2), Dec. 19,
1989, 103 Stat. 2373, 2412; Pub. L. 101-508, title XI, Secs.
11812(b)(5), 11813(b)(14), Nov. 5, 1990, 104 Stat. 1388-535,
1388-555; Pub. L. 105-34, title XVI, Sec. 1604(a)(2), Aug. 5, 1997,
111 Stat. 1097.)
-REFTEXT-
REFERENCES IN TEXT
Section 115(h) of the Internal Revenue Code of 1939, referred to
in subsec. (d)(2), was classified to section 115(h) of former Title
26, Internal Revenue Code. Section 115(h) was repealed by section
7851(a)(1) of this title. For table of comparisons of the 1939 Code
to the 1986 Code [formerly I.R.C. 1954], see Table I preceding
section 1 of this title. See, also, section 7851(e) of this title
for provision that references in the 1986 Code to a provision of
the 1939 Code, not then applicable, shall be deemed a reference to
the corresponding provision of the 1986 Code, then applicable.
-MISC1-
AMENDMENTS
1997 - Subsec. (k)(3)(B). Pub. L. 105-34, in heading substituted
"179 or 179A" for "179" and in text substituted "section 179 or
179A shall" for "section 179 shall" and "section 179 or 179A, as
the case may be)" for "section 179)".
1990 - Subsec. (k)(2). Pub. L. 101-508, Sec. 11812(b)(5),
substituted heading for one which read: "Exceptions" and amended
text generally. Prior to amendment, text read as follows: "If for
any taxable year beginning after June 30, 1972, a method of
depreciation was used by the taxpayer which the Secretary has
determined results in a reasonable allowance under section 167(a),
and which is not -
"(A) a declining balance method,
"(B) the sum of the years-digit method, or
"(C) any other method allowable solely by reason of the
application of subsection (b)(4) or (j)(1)(C) of section 167,
then the adjustment to earnings and profits for depreciation for
such year shall be determined under the method so used (in lieu of
under the straight line method)."
Subsec. (k)(5). Pub. L. 101-508, Sec. 11813(b)(14), substituted
"section 50(c)" for "section 48(q)".
1989 - Subsec. (b). Pub. L. 101-239, Sec. 7811(m)(2), made
clarifying amendment to directory language of Pub. L. 100-647, Sec.
1018(d)(4), see 1988 Amendment note below.
Subsec. (n)(2)(A)(ii). Pub. L. 101-239, Sec. 7611(f)(5)(A),
substituted "in which such amount was paid or incurred" for "in
which the production from the well begins".
1988 - Subsec. (b). Pub. L. 100-647, Sec. 1018(d)(4), as amended
by Pub. L. 101-239, Sec. 7811(m)(2), substituted "of any property
(other than an obligation of such corporation)" for "of any
property" in introductory provisions.
Subsec. (k)(4). Pub. L. 100-647, Sec. 1002(a)(3), substituted
"paragraph (1)" for "paragraphs (1) and (3)".
Subsec. (n)(1)(B). Pub. L. 100-647, Sec. 1018(u)(4), made
technical amendment to directory language of Pub. L. 99-514, Sec.
803(b)(3)(A). See 1986 Amendment note below.
1986 - Subsec. (b). Pub. L. 99-514, Sec. 1804(f)(1)(A), amended
subsec. (b) generally, substituting provisions relating to
distributions of appreciated property for provisions relating to
distribution of certain inventory assets.
Subsec. (c). Pub. L. 99-514, Sec. 1804(f)(1)(B), (C), struck out
", etc." after "liabilities" in heading and struck out par. (3)
which read as follows: "any gain recognized to the corporation on
the distribution."
Subsec. (k)(3). Pub. L. 99-514, Sec. 201(b), amended par. (3)
generally, substituting provisions relating to tangible property to
which section 168 applies and amounts deductible under section 179
for provisions relating to recovery property within the meaning of
section 168, amounts deductible under section 179, and flexibility
if a different recovery percentage is elected under section 168
based on a longer recovery period.
Subsec. (k)(3)(A). Pub. L. 99-514, Sec. 1809(a)(2)(C)(ii), in
subpar. (A), struck out "and rules similar to the rules under the
next to the last sentence of section 168(b)(2)(A) and section
168(b)(2)(B) shall apply" after "low-income housing)".
Subsec. (k)(4). Pub. L. 99-514, Sec. 201(d)(6), struck out last
sentence "In determining the earnings and profits of such
corporation in the case of recovery property (within the meaning of
section 168), the rules of section 168(f)(2) shall apply."
Subsec. (n)(1)(B). Pub. L. 99-514, Sec. 803(b)(3)(A), as amended
by Pub. L. 100-647, Sec. 1018(u)(4), struck out "(determined
without regard to section 189)" after "incurred".
Subsec. (n)(1)(C). Pub. L. 99-514, Sec. 803(b)(3)(B), added
subpar. (C) and struck out former subpar. (C) which read as
follows: "The term 'construction period' has the meaning given such
term by section 189(e)(2) (determined without regard to any real
property limitation)."
Subsec. (n)(3). Pub. L. 99-514, Sec. 241(b)(1), struck out ",
177," after "sections 173".
Subsec. (n)(4). Pub. L. 99-514, Sec. 631(e)(1), amended par. (4)
generally. Prior to amendment, par. (4) read as follows: "Earnings
and profits shall be increased or decreased by the amount of any
increase or decrease in the LIFO recapture amount (determined under
section 336(b)(3)) as of the close of each taxable year; except
that any decrease below the LIFO recapture amount as of the close
of the taxable year preceding the first taxable year to which this
paragraph applies to the taxpayer shall be taken into account only
to the extent provided in regulations prescribed by the Secretary."
Pub. L. 99-514, Sec. 1804(f)(1)(D), redesignated par. (5) as (4).
Former par. (4), relating to certain untaxed appreciation of
distributed property, was struck out.
Subsec. (n)(5) to (7). Pub. L. 99-514, Sec. 1804(f)(1)(D),
redesignated pars. (6) to (8) as (5) to (7), respectively. Former
par. (5) redesignated (4).
Subsec. (n)(8), (9). Pub. L. 99-514, Sec. 1804(f)(1)(D), (E),
redesignated par. (9) as (8) and substituted provisions of subpars.
(A) and (B) for "paragraphs (5), (6), and (7) shall apply only in
the case of taxable years beginning after December 31, 1985."
Former par. (8) redesignated (7).
1985 - Subsec. (k)(3)(A). Pub. L. 99-121 substituted "19-year
real property" for "18-year real property" wherever appearing.
1984 - Subsec. (a)(2). Pub. L. 98-369, Sec. 61(c)(1)(A), inserted
"(or, in the case of obligations having original issue discount,
the aggregate issue price of such obligations)".
Subsec. (e). Pub. L. 98-369, Sec. 61(a)(2)(B), struck out subsec.
(e) which provided: "In the case of amounts distributed in a
redemption to which section 302(a) or 303 applies, the part of such
distribution which is properly chargeable to capital account shall
not be treated as a distribution of earnings and profits."
Subsec. (h). Pub. L. 98-369, Sec. 63(b), amended subsec. (h)
generally, designating existing provisions as par. (1) and adding
par. (2).
Subsec. (j)(3). Pub. L. 98-369, Sec. 61(a)(2)(A), struck out par.
(3) which provided: "If a foreign investment company (as defined in
section 1246) distributes amounts in a redemption to which section
302(a) or 303 applies, the part of such distribution which is
properly chargeable to earnings and profits shall be an amount
which is not in excess of the ratable share of the earnings and
profits of the company accumulated after February 28, 1913,
attributable to the stock so redeemed."
Subsec. (k)(3)(A). Pub. L. 98-369, Sec. 111(e)(5), substituted
"18-year real property and low-income housing" for "15-year real
property" in three places.
Pub. L. 98-369, Sec. 61(b), substituted "40 years" for "35 years"
in table item relating to 15-year real property. Directory language
that table be amended by substituting "40 years" for "35 years" in
item relating to 15-year real property and 20-year real property,
was executed by making the substitution in item relating to 15-year
real property. The table contained no item relating to 20-year real
property.
Subsec. (n). Pub. L. 98-369, Sec. 61(a)(1), added subsec. (n).
Subsec. (o). Pub. L. 98-369, Sec. 61(c)(1)(B), added subsec. (o).
1983 - Subsec. (j)(3). Pub. L. 97-448 substituted "Redemptions"
for "Partial liquidations and redemptions" in heading, and in text
struck out "in partial liquidation or" after "distributes amounts".
1982 - Subsec. (e). Pub. L. 97-248, Sec. 222(e)(3), struck out
"partial liquidations and" in heading, and in text struck out "in
partial liquidation (whether before, on, or after June 22, 1954)
or" after "amounts distributed".
Subsec. (k)(5). Pub. L. 97-248, Sec. 205(a)(3), added par. (5).
Subsec. (m). Pub. L. 97-248, Sec. 310(b)(3), added subsec. (m).
1981 - Subsec. (k)(3), (4). Pub. L. 97-34 added par. (3),
redesignated former par. (3) as (4) substituted "The provisions of
paragraphs (1) and (3)" for "The provisions of paragraph (1)", and
inserted provision that the rules of section 168(f)(2) shall apply
in determining the earnings and profits of the corporation in the
case of recovery property (within the meaning of section 168).
1980 - Subsec. (l). Pub. L. 96-589 added subsec. (l).
1978 - Subsec. (c)(3). Pub. L. 95-628 substituted "gain
recognized to the corporation on the distribution" for "gain to the
corporation recognized under subsection (b), (c), or (d) of section
311, under section 341(f), or under section 617(d)(1), 1245(a),
1250(a), 1251(c), 1252(a), or 1254(a)".
1976 - Subsec. (c)(3). Pub. L. 94-455, Sec. 205(c)(1)(D),
substituted "1252(a), or 1254(a)" for "or 1252(a)".
Subsec. (d)(1). Pub. L. 94-455, Sec. 1901(a)(43)(A), substituted
"this title" for "this Code" wherever appearing.
Subsec. (h). Pub. L. 94-455, Secs. 1901(a)(43)(B),
1906(b)(13)(A), redesignated subsec. (i) as (h) and struck out "or
his delegate" after "Secretary". Former subsec. (h), which related
to earnings and profits of personal service corporations, was
struck out.
Subsec. (i). Pub. L. 94-455, Sec. 1901(a)(43)(B), (C),
redesignated subsec. (j) as (i), and, among other changes,
substituted "paragraph (2)" for "subparagraph (B) of the preceding
sentence" and "of this subsection" for "of this paragraph", and
struck out provisions relating to the effective date of this
subsec. Former subsec. (i) redesignated (h).
Subsec. (j). Pub. L. 94-455, Secs. 1901(a)(43)(D), (b)(32)(B)(i),
1906(b)(13)(A), redesignated subsec. (l) as (j), struck out "or his
delegate" after "Secretary" in par. (1) and in par. (3) provision
relating to the effective date of such paragraph. Former subsec.
(j) redesignated (i).
Subsec. (k). Pub. L. 94-455, Secs. 1901(b)(32)(B)(i),
1906(b)(13)(A), redesignated subsec. (m) as (k) and struck out "or
his delegate" after "Secretary" in par. (2). Former subsec. (k),
relating to special adjustment on disposition of antitrust stock
received as a dividend, was struck out.
Subsec. (l). Pub. L. 94-455, Sec. 1901(b)(32)(B)(i), redesignated
subsec. (l) as (j).
Subsec. (m). Pub. L. 94-455, Sec. 1901(b)(32)(B)(i), redesignated
subsec. (m) as (k).
1969 - Subsec. (c)(3). Pub. L. 91-172, Secs. 211(b)(3),
905(b)(2), substituted "1250(a), 1251(c), or 1252(a)", for "or
1250(a)" and inserted reference to section 311(d).
Subsec. (m). Pub. L. 91-172, Sec. 442(a), added subsec. (m).
1966 - Subsec. (c)(3). Pub. L. 89-570 inserted reference to
section 617(d)(1).
1964 - Subsec. (c)(3). Pub. L. 88-484 authorized adjustment for
amount of gain recognized under section 341(f).
Pub. L. 88-272 inserted reference to section 1250(a).
1962 - Subsec. (c)(3). Pub. L. 87-834, Sec. 13(f)(3), included
any gain recognized under section 1245(a).
Subsec. (k). Pub. L. 87-403 added subsec. (k).
Subsec. (l). Pub. L. 87-834, Sec. 14(b)(1), added subsec. (l).
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 effective as if included in the
amendments made by section 1913 of the Energy Policy Act of 1992,
Pub. L. 102-486, see section 1604(a)(4) of Pub. L. 105-34, set out
as a note under section 263 of this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by section 11812(b)(5) of Pub. L. 101-508 applicable to
property placed in service after Nov. 5, 1990, but not applicable
to any property to which section 168 of this title does not apply
by reason of subsec. (f)(5) of section 168, and not applicable to
rehabilitation expenditures described in section 252(f)(5) of Pub.
L. 99-514, see section 11812(c) of Pub. L. 101-508, set out as a
note under section 42 of this title.
Amendment by section 11813(b)(14) of Pub. L. 101-508 applicable
to property placed in service after Dec. 31, 1990, but not
applicable to any transition property (as defined in section 49(e)
of this title), any property with respect to which qualified
progress expenditures were previously taken into account under
section 46(d) of this title, and any property described in section
46(b)(2)(C) of this title, as such sections were in effect on Nov.
4, 1990, see section 11813(c) of Pub. L. 101-508, set out as a note
under section 29 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by section 7611(f)(5)(A) of Pub. L. 101-239 applicable
to costs paid or incurred in taxable years beginning after Dec. 31,
1989, see section 7611(g)(2) of Pub. L. 101-239, set out as a note
under section 56 of this title.
Amendment by section 7811(m)(2) of Pub. L. 101-239 effective,
except as otherwise provided, as if included in the provision of
the Technical and Miscellaneous Revenue Act of 1988, Pub. L.
100-647, to which such amendment relates, see section 7817 of Pub.
L. 101-239, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
If any interest costs incurred after Dec. 31, 1986, are
attributable to costs incurred before Jan. 1, 1987, the amendment
by section 803(b)(3) of Pub. L. 99-514 is applicable to such
interest costs only to the extent such interest costs are
attributable to costs which were required to be capitalized under
section 263 of the Internal Revenue Code of 1954 and which would
have been taken into account in applying section 189 of the
Internal Revenue Code of 1954 (as in effect before its repeal by
section 803 of Pub. L. 99-514) or, if applicable, section 266 of
such Code, see section 7831(d)(2) of Pub. L. 101-239, set out as an
Effective Date note under section 263A of this title.
Amendment by section 201(b), (d)(6) of Pub. L. 99-514 applicable
to property placed in service after Dec. 31, 1986, in taxable years
ending after such date, with exceptions, see sections 203 and 204
of Pub. L. 99-514, set out as a note under section 168 of this
title.
Amendment by section 201(b), (d)(6) of Pub. L. 99-514 not
applicable to any property placed in service before Jan. 1, 1994,
if such property placed in service as part of specified
rehabilitations, and not applicable to certain additional
rehabilitations, see section 251(d)(2), (3) of Pub. L. 99-514, set
out as a note under section 46 of this title.
Amendment by section 241(b)(1) of Pub. L. 99-514 applicable to
expenditures paid or incurred after Dec. 31, 1986, except as
otherwise provided, see section 241(c) of Pub. L. 99-514, set out
as an Effective Date of Repeal note under former section 177 of
this title.
Amendment by section 631(e)(1) of Pub. L. 99-514 applicable to
any distribution in complete liquidation, and any sale or exchange,
made by a corporation after July 31, 1986, unless such corporation
is completely liquidated before Jan. 1, 1987, any transaction
described in section 338 of this title for which the acquisition
date occurs after Dec. 31, 1986, and any distribution, not in
complete liquidation, made after Dec. 31, 1986, with exceptions and
special and transitional rules, see section 633 of Pub. L. 99-514,
set out as an Effective Date note under section 336 of this title.
Amendment by section 803(b)(3) of Pub. L. 99-514 applicable to
costs incurred after Dec. 31, 1986, in taxable years ending after
such date, except as otherwise provided, see section 803(d) of Pub.
L. 99-514, set out as an Effective Date note under section 263A of
this title.
Amendment by sections 1804(f)(1)(A)-(E) and 1809(a)(2)(C)(ii) of
Pub. L. 99-514 effective, except as otherwise provided, as if
included in the provisions of the Tax Reform Act of 1984, Pub. L.
98-369, div. A, to which such amendment relates, see section 1881
of Pub. L. 99-514, set out as a note under section 48 of this
title.
Section 1804(f)(3) of Pub. L. 99-514 provided that: "Paragraph
(7) of section 312(n) of the Internal Revenue Code of 1954 [now
1986] (as redesignated by paragraph (1)(D) of this subsection), and
the amendments made by section 61(a)(2) of the Tax Reform Act of
1984 [amending this section], shall apply to distributions in
taxable years beginning after September 30, 1984."
EFFECTIVE DATE OF 1985 AMENDMENT
Amendment by Pub. L. 99-121 applicable with respect to property
placed in service by the taxpayer after May 8, 1985, with specified
exceptions, see section 105(b) of Pub. L. 99-121, set out as a note
under section 168 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 61(e)(1)-(3) of Pub. L. 98-369, as amended by Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) Adjustments to earnings and profits. -
"(A) Paragraphs (1), (2), and (3) of section 312(n). - The
provisions of paragraphs (1), (2), and (3) of section 312(n) of
the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as
added by subsection (a)) shall apply to amounts paid or incurred
in taxable years beginning after September 30, 1984.
"(B) Paragraph (4) of section 312(n). - The provisions of
paragraph (4) of section 312(n) of such Code (as so added) shall
apply to distributions after September 30, 1984; except that such
provisions shall not apply to any distribution to which the
amendments made by section 54(a) of this Act [amending section
311 of this title] do not apply.
"(C) LIFO inventory. - The provisions of paragraph (5) of
section 312(n) of such Code (as so added) shall apply to taxable
years beginning after September 30, 1984.
"(D) Installment sales. - The provisions of paragraph (6) of
section 312(n) of such Code (as so added) shall apply to sales
after September 30, 1984, in taxable years ending after such
date.
"(E) Completed contract method. - The provisions of paragraph
(7) of section 312(n) of such Code (as so added) shall apply to
contracts entered into after September 30, 1984, in taxable years
ending after such date.
"(2) Subsection (b). - The amendments made by subsection (b)
[amending this section] shall apply to property placed in service
in taxable years beginning after September 30, 1984.
"(3) Subsection (c). - The amendments made by subsection (c)
[amending this section and section 1275 of this title] shall apply
with respect to distributions declared after March 15, 1984, in
taxable years ending after such date."
Amendment by section 61(a)(2) of Pub. L. 98-369 applicable to
distributions in taxable years beginning after Sept. 30, 1984, see
section 1804(f)(3) of Pub. L. 99-514, set out as an Effective Date
of 1986 Amendment note above.
Section 1804(f)(1)(F) of Pub. L. 99-514 provided that: "Any
reference in subsection (e) of section 61 of the Tax Reform Act of
1984 [set out above] to a paragraph of section 312(n) of the
Internal Revenue Code of 1954 [now 1986] shall be treated as a
reference to such paragraph as in effect before its redesignation
by subparagraph (D) [see 1986 Amendment note above]."
Section 63(c) of Pub. L. 98-369 provided that: "The amendment
made by this section [amending this section and section 368 of this
title] shall apply to transactions pursuant to plans adopted after
the date of the enactment of this Act [July 18, 1984]."
Amendment by section 111(e)(5) of Pub. L. 98-369 applicable with
respect to property placed in service by the taxpayer after Mar.
15, 1984, subject to certain exceptions, see section 111(g) of Pub.
L. 98-369, set out as a note under section 168 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective as if included in the
provisions of the Tax Equity and Fiscal Responsibility Act of 1982,
Pub. L. 97-248, to which such amendment relates, see section 311(d)
of Pub. L. 97-448, set out as a note under section 31 of this
title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by section 205(a)(3) of Pub. L. 97-248 applicable to
periods after Dec. 31, 1982, under rules similar to the rules of
section 48(m) of this title, with certain qualifications, see
section 205(c)(1) of Pub. L. 97-248, set out as an Effective Date
note under section 196 of this title.
Amendment by section 222(e)(3) of Pub. L. 97-248 applicable to
distributions after Aug. 31, 1982, with exceptions for certain
partial liquidations, see section 222(f) of Pub. L. 97-248, set out
as a note under section 302 of this title.
Amendment by section 310(b)(3) of Pub. L. 97-248 applicable to
obligations issued after Dec. 31, 1982, with exceptions for certain
warrants, see section 310(d) of Pub. L. 97-248, set out as a note
under section 103 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by Pub. L. 97-34 applicable to property placed in
service after Dec. 31, 1980, in taxable years ending after that
date, see section 209(a) of Pub. L. 97-34, set out as an Effective
Date note under section 168 of this title.
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-589 applicable to transactions which
occur after Dec. 31, 1980, other than transactions which occur in
proceedings in bankruptcy cases or similar judicial proceedings or
in proceedings under Title 11, Bankruptcy, commencing on or before
Dec. 31, 1980, except as otherwise provided, see section 7 of Pub.
L. 96-589, set out as a note under section 108 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by Pub. L. 95-628 applicable to distributions made
after Nov. 10, 1978, see section 3(d) of Pub. L. 95-628, set out as
a note under section 301 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 205(c)(1)(D) of Pub. L. 94-455 effective for
taxable years ending after Dec. 31, 1975, see section 205(e) of
Pub. L. 94-455, set out as a note under section 1254 of this title.
Amendment by section 1901(a)(43) of Pub. L. 94-455 effective for
taxable years beginning after Dec. 31, 1976, see section 1901(d) of
Pub. L. 94-455, set out as a note under section 2 of this title.
Amendment by section 1901(b)(32) of Pub. L. 94-455 effective for
taxable years beginning after Dec. 31, 1976, see section 1901(d) of
Pub. L. 94-455, set out as a note under section 2 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by section 211(b)(3) of Pub. L. 91-172 applicable to
taxable years beginning after December 31, 1969, see section 211(c)
of Pub. L. 91-172, set out as a note under section 301 of this
title.
Amendment by section 905(b)(2) Pub. L. 91-172 effective with
respect to distributions made after Nov. 30, 1969, see section
905(c) of Pub. L. 91-172, set out as a note under section 311 of
this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-570 applicable to taxable years ending
after Sept. 12, 1966, but only in respect of expenditures paid or
incurred after such date, see section 3 of Pub. L. 89-570, set out
as an Effective Date note under section 617 of this title.
EFFECTIVE DATE OF 1964 AMENDMENTS
Amendment by Pub. L. 88-484 applicable with respect to
transactions after Aug. 22, 1964 in taxable years ending after such
date, see section 2 of Pub. L. 88-484, set out as a note under
section 301 of this title.
Amendment by Pub. L. 88-272 applicable to dispositions after Dec.
31, 1963, in taxable years ending after such date, see section
231(c) of Pub. L. 88-272, set out as an Effective Date note under
section 1250 of this title.
EFFECTIVE DATE OF 1962 AMENDMENTS
Amendment by section 13(f)(3) of Pub. L. 87-834 applicable to
taxable years beginning after Dec. 31, 1962, see section 13(g) of
Pub. L. 87-834, set out as an Effective Date note under section
1245 of this title.
Amendment by section 14(b)(1) of Pub. L. 87-834 applicable with
respect to taxable years beginning after Dec. 31, 1962, see section
14(c) of Pub. L. 87-834, set out as an Effective Date note under
section 1246 of this title.
Section 3(g) of Pub. L. 87-403 provided that: "The amendments
made by this section [amending this section and sections 535, 543,
545, 556 and 561 of this title] shall apply only with respect to
distributions made after the date of the enactment of this Act
[Feb. 2, 1962]."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 29 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 56, 301, 952, 964, 1246,
1248, 1293, 1503 of this title.
-FOOTNOTE-
(!1) Subsec. (m) was enacted without a period at the end.
-End-
-CITE-
26 USC Subpart C - Definitions; Constructive Ownership of
Stock 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART I - DISTRIBUTIONS BY CORPORATIONS
Subpart C - Definitions; Constructive Ownership of Stock
-HEAD-
SUBPART C - DEFINITIONS; CONSTRUCTIVE OWNERSHIP OF STOCK
-MISC1-
Sec.
316. Dividend defined.
317. Other definitions.
318. Constructive ownership of stock.
-End-
-CITE-
26 USC Sec. 316 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART I - DISTRIBUTIONS BY CORPORATIONS
Subpart C - Definitions; Constructive Ownership of Stock
-HEAD-
Sec. 316. Dividend defined
-STATUTE-
(a) General rule
For purposes of this subtitle, the term "dividend" means any
distribution of property made by a corporation to its shareholders
-
(1) out of its earnings and profits accumulated after February
28, 1913, or
(2) out of its earnings and profits of the taxable year
(computed as of the close of the taxable year without diminution
by reason of any distributions made during the taxable year),
without regard to the amount of the earnings and profits at the
time the distribution was made.
Except as otherwise provided in this subtitle, every distribution
is made out of earnings and profits to the extent thereof, and from
the most recently accumulated earnings and profits. To the extent
that any distribution is, under any provision of this subchapter,
treated as a distribution of property to which section 301 applies,
such distribution shall be treated as a distribution of property
for purposes of this subsection.
(b) Special rules
(1) Certain insurance company dividends
The definition in subsection (a) shall not apply to the term
"dividend" as used in subchapter L in any case where the
reference is to dividends of insurance companies paid to
policyholders as such.
(2) Distributions by personal holding companies
(A) In the case of a corporation which -
(i) under the law applicable to the taxable year in which
the distribution is made, is a personal holding company (as
defined in section 542), or
(ii) for the taxable year in respect of which the
distribution is made under section 563(b) (relating to
dividends paid after the close of the taxable year), or
section 547 (relating to deficiency dividends), or the
corresponding provisions of prior law, is a personal holding
company under the law applicable to such taxable year,
the term "dividend" also means any distribution of property
(whether or not a dividend as defined in subsection (a)) made
by the corporation to its shareholders, to the extent of its
undistributed personal holding company income (determined under
section 545 without regard to distributions under this
paragraph) for such year.
(B) For purposes of subparagraph (A), the term "distribution
of property" includes a distribution in complete liquidation
occurring within 24 months after the adoption of a plan of
liquidation, but -
(i) only to the extent of the amounts distributed to
distributees other than corporate shareholders, and
(ii) only to the extent that the corporation designates
such amounts as a dividend distribution and duly notifies
such distributees of such designation, under regulations
prescribed by the Secretary, but
(iii) not in excess of the sum of such distributees'
allocable share of the undistributed personal holding company
income for such year, computed without regard to this
subparagraph or section 562(b).
(3) Deficiency dividend distributions by a regulated investment
company or real estate investment trust
The term "dividend" also means any distribution of property
(whether or not a dividend as defined in subsection (a)) which
constitutes a "deficiency dividend" as defined in section 860(f).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 98; Mar. 13, 1956, ch. 83, Sec.
5(1), 70 Stat. 49; Pub. L. 88-272, title II, Sec. 225(f)(1), Feb.
26, 1964, 78 Stat. 87; Pub. L. 94-455, title XVI, Sec. 1601(d),
title XIX, Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1746, 1834;
Pub. L. 95-600, title III, Sec. 362(d)(1), Nov. 6, 1978, 92 Stat.
2851.)
-MISC1-
AMENDMENTS
1978 - Subsec. (b)(3). Pub. L. 95-600 inserted "regulated
investment company or" after "distributions by a" in heading and
substituted in text "section 860(f)" for "section 859(d)".
1976 - Subsec. (b)(2)(B)(ii). Pub. L. 94-455, Sec.
1906(b)(13)(A), struck out "or his delegate" after "Secretary".
Subsec. (b)(3). Pub. L. 94-455, Sec. 1601(d), added par. (3).
1964 - Subsec. (b)(2). Pub. L. 88-272 inserted definition of
"distribution of property".
1956 - Subsec. (b)(1). Act Mar. 13, 1956, substituted "subchapter
L" for "sections 803(e), 821(a)(2), and 832(c)(11)".
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by Pub. L. 95-600 applicable with respect to
determinations (as defined in section 860(e) of this title) after
Nov. 6, 1978, see section 362(e) of Pub. L. 95-600, set out as an
Effective Date note under section 860 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
For effective date of amendment by section 1601(d) of Pub. L.
94-455, see section 1608(a) of Pub. L. 94-455, set out as a note
under section 857 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Section 225(l) of Pub. L. 88-272 provided that:
"(1) The amendments made by this section [enacting section 1022,
redesignating former section 1022 as 1023, amending this section
and sections 331, 333, 381, 541, 542, 543, 544, 545, 551, 553, 554,
562, 856, 1016, 1361, 6501, and the analysis preceding section
1011, and enacting provisions set out as a note under section 333
of this title] (other than by subsections (c)(1), (f), (g), and (j)
[enacting section 1022, redesignating former section 1022 as 1023,
amending this section and sections 331, 333, 542, 551, 562, 1016,
and the analysis preceding section 1011 of this title]) shall apply
to taxable years beginning after December 31, 1963.
"(2) The amendment made by subsection (c)(1) [amending section
542 of this title] shall apply to taxable years beginning after
October 16, 1962.
"(3) The amendments made by subsections (f) and (g) [amending
this section and sections 331, 333, 551, and 562 of this title]
shall apply to distributions made in any taxable year of the
distributing corporation beginning after December 31, 1963.
"(4) The amendments made by subsection (j) [enacting section
1022, redesignating former section 1022 as 1023, and amending
section 1016 and the analysis preceding section 1011 of this title]
shall apply in respect of decedents dying after December 31, 1963.
"(5) Subsection (h) [set out as a note under section 333 of this
title] shall apply to taxable years beginning after December 31,
1963."
EFFECTIVE DATE OF 1956 AMENDMENT
Section 6 of act Mar. 13, 1956, provided that: "The amendments
made by this Act [amending this section and sections 501, 594, 801
to 805, 811 to 813, 816 to 818, 821, 822, 832, 841, 842, 843, 891,
1201, 1504, and 4371 of this title] shall apply only to taxable
years beginning after December 31, 1954."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 301, 331, 562, 565, 904,
956, 959, 6042, 7518 of this title; title 46 App. section 1177.
-End-
-CITE-
26 USC Sec. 317 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART I - DISTRIBUTIONS BY CORPORATIONS
Subpart C - Definitions; Constructive Ownership of Stock
-HEAD-
Sec. 317. Other definitions
-STATUTE-
(a) Property
For purposes of this part, the term "property" means money,
securities, and any other property; except that such term does not
include stock in the corporation making the distribution (or rights
to acquire such stock).
(b) Redemption of stock
For purposes of this part, stock shall be treated as redeemed by
a corporation if the corporation acquires its stock from a
shareholder in exchange for property, whether or not the stock so
acquired is cancelled, retired, or held as treasury stock.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 99.)
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 301, 302, 306, 593 of
this title.
-End-
-CITE-
26 USC Sec. 318 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART I - DISTRIBUTIONS BY CORPORATIONS
Subpart C - Definitions; Constructive Ownership of Stock
-HEAD-
Sec. 318. Constructive ownership of stock
-STATUTE-
(a) General rule
For purposes of those provisions of this subchapter to which the
rules contained in this section are expressly made applicable -
(1) Members of family
(A) In general
An individual shall be considered as owning the stock owned,
directly or indirectly, by or for -
(i) his spouse (other than a spouse who is legally
separated from the individual under a decree of divorce or
separate maintenance), and
(ii) his children, grandchildren, and parents.
(B) Effect of adoption
For purposes of subparagraph (A)(ii), a legally adopted child
of an individual shall be treated as a child of such individual
by blood.
(2) Attribution from partnerships, estates, trusts, and
corporations
(A) From partnerships and estates
Stock owned, directly or indirectly, by or for a partnership
or estate shall be considered as owned proportionately by its
partners or beneficiaries.
(B) From trusts
(i) Stock owned, directly or indirectly, by or for a trust
(other than an employees' trust described in section 401(a)
which is exempt from tax under section 501(a)) shall be
considered as owned by its beneficiaries in proportion to the
actuarial interest of such beneficiaries in such trust.
(ii) Stock owned, directly or indirectly, by or for any
portion of a trust of which a person is considered the owner
under subpart E of part I of subchapter J (relating to
grantors and others treated as substantial owners) shall be
considered as owned by such person.
(C) From corporations
If 50 percent or more in value of the stock in a corporation
is owned, directly or indirectly, by or for any person, such
person shall be considered as owning the stock owned, directly
or indirectly, by or for such corporation, in that proportion
which the value of the stock which such person so owns bears to
the value of all the stock in such corporation.
(3) Attribution to partnerships, estates, trusts, and
corporations
(A) To partnerships and estates
Stock owned, directly or indirectly, by or for a partner or a
beneficiary of an estate shall be considered as owned by the
partnership or estate.
(B) To trusts
(i) Stock owned, directly or indirectly, by or for a
beneficiary of a trust (other than an employees' trust
described in section 401(a) which is exempt from tax under
section 501(a)) shall be considered as owned by the trust,
unless such beneficiary's interest in the trust is a remote
contingent interest. For purposes of this clause, a
contingent interest of a beneficiary in a trust shall be
considered remote if, under the maximum exercise of
discretion by the trustee in favor of such beneficiary, the
value of such interest, computed actuarially, is 5 percent or
less of the value of the trust property.
(ii) Stock owned, directly or indirectly, by or for a
person who is considered the owner of any portion of a trust
under subpart E of part I of subchapter J (relating to
grantors and others treated as substantial owners), shall be
considered as owned by the trust.
(C) To corporations
If 50 percent or more in value of the stock in a corporation
is owned, directly or indirectly, by or for any person, such
corporation shall be considered as owning the stock owned,
directly or indirectly, by or for such person.
(4) Options
If any person has an option to acquire stock, such stock shall
be considered as owned by such person. For purposes of this
paragraph, an option to acquire such an option, and each one of a
series of such options, shall be considered as an option to
acquire such stock.
(5) Operating rules
(A) In general
Except as provided in subparagraphs (B) and (C), stock
constructively owned by a person by reason of the application
of paragraph (1), (2), (3), or (4), shall, for purposes of
applying paragraphs (1), (2), (3), and (4), be considered as
actually owned by such person.
(B) Members of family
Stock constructively owned by an individual by reason of the
application of paragraph (1) shall not be considered as owned
by him for purposes of again applying paragraph (1) in order to
make another the constructive owner of such stock.
(C) Partnerships, estates, trusts, and corporations
Stock constructively owned by a partnership, estate, trust,
or corporation by reason of the application of paragraph (3)
shall not be considered as owned by it for purposes of applying
paragraph (2) in order to make another the constructive owner
of such stock.
(D) Option rule in lieu of family rule
For purposes of this paragraph, if stock may be considered as
owned by an individual under paragraph (1) or (4), it shall be
considered as owned by him under paragraph (4).
(E) S corporation treated as partnership
For purposes of this subsection -
(i) an S corporation shall be treated as a partnership, and
(ii) any shareholder of the S corporation shall be treated
as a partner of such partnership.
The preceding sentence shall not apply for purposes of
determining whether stock in the S corporation is
constructively owned by any person.
(b) Cross references
For provisions to which the rules contained in subsection (a)
apply, see -
(1) section 302 (relating to redemption of stock);
(2) section 304 (relating to redemption by related
corporations);
(3) section 306(b)(1)(A) (relating to disposition of section
306 stock);
(4) section 338(h)(3) (defining purchase);
(5) section 382(l)(3) (relating to special limitations on net
operating loss carryovers);
(6) section 856(d) (relating to definition of rents from real
property in the case of real estate investment trusts);
(7) section 958(b) (relating to constructive ownership rules
with respect to controlled foreign corporations); and
(8) section 6038(d)(2) (relating to information with respect
to certain foreign corporations).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 99; Pub. L. 86-779, Sec. 10(h),
Sept. 14, 1960, 74 Stat. 1009; Pub. L. 87-834, Sec. 20(d)(1), Oct.
16, 1962, 76 Stat. 1063; Pub. L. 88-554, Sec. 4(a), (b)(2), Aug.
31, 1964, 78 Stat. 762, 763; Pub. L. 97-248, title II, Sec.
224(c)(3), Sept. 3, 1982, 96 Stat. 489; Pub. L. 98-369, div. A,
title VII, Secs. 712(k)(5)(E), 721(j), July 18, 1984, 98 Stat. 950,
969; Pub. L. 99-514, title VI, Sec. 621(c)(1), Oct. 22, 1986, 100
Stat. 2266; Pub. L. 105-34, title XI, Sec. 1142(e)(3), Aug. 5,
1997, 111 Stat. 983.)
-MISC1-
AMENDMENTS
1997 - Subsec. (b)(8). Pub. L. 105-34 substituted "6038(d)(2)"
for "6038(d)(1)".
1986 - Subsec. (b)(5). Pub. L. 99-514 substituted "382(l)(3)" for
"382(a)(3)".
1984 - Subsec. (a)(5)(E). Pub. L. 98-369, Sec. 721(j), added
subpar. (E).
Subsec. (b)(4). Pub. L. 98-369, Sec. 712(k)(5)(E), substituted
"section 338(h)(3) (defining purchase)" for "section 338(h)(3)(B)
(relating to purchase of stock from subsidiaries, etc.)".
1982 - Subsec. (b)(4). Pub. L. 97-248 substituted "section
338(h)(3)(B) (relating to purchase of stock from subsidiaries,
etc.)" for "section 334(b)(3)(C) (relating to basis of property
received in certain liquidations of subsidiaries)".
1964 - Subsec. (a). Pub. L. 88-554, Sec. 4(a), struck out
sidewise attribution by providing that when stock is attributed to
a partnership, estate, trust, or corporation from a partner,
shareholder, or beneficiary, this stock is not to be attributed
again to another partner, beneficiary, or shareholder.
Subsec. (b)(7), (8). Pub. L. 88-554, Sec. 4(b)(2), added par. (7)
and redesignated former par. (7) as (8).
1962 - Subsec. (b)(7). Pub. L. 87-834 added par. (7).
1960 - Subsec. (b)(6). Pub. L. 86-779 added par. (6).
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1142(f) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section and sections 901 and
6038 of this title] shall apply to annual accounting periods
beginning after the date of the enactment of this Act [Aug. 5,
1997]."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to any ownership change
after Dec. 31, 1986, except as otherwise provided, see section
621(f) of Pub. L. 99-514, as amended, set out as a note under
section 382 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 712(k)(5)(E) of Pub. L. 98-369 not
applicable to any qualified stock purchase where the acquisition
date is before Sept. 1, 1982, see section 712(k)(9)(A) of Pub. L.
98-369, set out as a note under section 338 of this title.
Amendment by section 712(k)(5)(E) of Pub. L. 98-369 effective as
if included in the provision of the Tax Equity and Fiscal
Responsibility Act of 1982, Pub. L. 97-248, to which such amendment
relates, see section 715 of Pub. L. 98-369, set out as a note under
section 31 of this title.
Amendment by section 721(j) of Pub. L. 98-369 effective as if
included in the Subchapter S Revision Act of 1982, Pub. L. 97-354,
see section 721(y)(1) of Pub. L. 98-369, set out as a note under
section 1361 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-248 applicable to any target corporation
with respect to which the acquisition date occurs after Aug. 31,
1982, with special rules for certain acquisitions before Sept. 1,
1982, and certain acquisitions of financial institutions in which
there was a binding contract on July 22, 1982, to acquire control,
see section 224(d) of Pub. L. 97-248, set out as an Effective Date
note under section 338 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Section 4(c) of Pub. L. 88-554, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by this section [amending this section and sections
304, 382, 856, 958, and 6038 of this title] shall take effect on
the date of the enactment of this Act, [Aug. 31, 1964], except
that, for purposes of sections 302 and 304 of the Internal Revenue
Code of 1986 [formerly I.R.C. 1954], such amendments shall not
apply with respect to distributions in payment for stock
acquisitions or redemptions, if such acquisitions or redemptions
occurred before the date of the enactment of this Act."
EFFECTIVE DATE OF 1960 AMENDMENT
Amendment by Pub. L. 86-779 applicable with respect to taxable
years of real estate investment trusts beginning after Dec. 31,
1960, see section 10(k) of Pub. L. 86-779, set out as an Effective
Date note under section 856 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 105, 129, 168, 263A,
269A, 269B, 301, 302, 304, 306, 338, 355, 356, 367, 382, 409, 414,
416, 441, 453, 465, 469, 512, 664, 809, 856, 871, 881, 897, 904,
958, 1042, 1059, 1060, 1239, 1246, 1372, 2036, 4975, 6038, 6038A,
7704 of this title; title 29 sections 1108, 1301.
-End-
-CITE-
26 USC PART II - CORPORATE LIQUIDATIONS 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART II - CORPORATE LIQUIDATIONS
-HEAD-
PART II - CORPORATE LIQUIDATIONS
-MISC1-
Subpart
A. Effects on recipients.
B. Effects on corporation.
[C. Repealed.]
D. Definition and special rule.
-STATAMEND-
AMENDMENT OF ANALYSIS
For inapplicability of amendment by Pub. L. 108-27 to taxable
years beginning after Dec. 31, 2008, see section 303 of Pub. L.
108-27, set out as an Effective and Termination Dates of 2003
Amendment note under section 1 of this title.
-MISC2-
AMENDMENTS
2003 - Pub. L. 108-27, title III, Secs. 302(e)(4)(B)(iii), 303,
May 28, 2003, 117 Stat. 764, temporarily struck out item for
subpart C "Collapsible corporations".
1982 - Pub. L. 97-248, title II, Sec. 222(e)(8)(B), Sept. 3,
1982, 96 Stat. 481, inserted "and special rule" in item for subpart
D.
1976 - Pub. L. 94-455, title XIX, Sec. 1901(b)(12)(B), Oct. 4,
1976, 90 Stat. 1795, struck out in table of subparts for part II of
subchapter C of chapter 1 in subpart (C) "; foreign personal
holding companies" after "corporations".
-SECREF-
PART REFERRED TO IN OTHER SECTIONS
This part is referred to in sections 301, 306, 1445 of this
title.
-End-
-CITE-
26 USC Subpart A - Effects on Recipients 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART II - CORPORATE LIQUIDATIONS
Subpart A - Effects on Recipients
-HEAD-
SUBPART A - EFFECTS ON RECIPIENTS
-MISC1-
Sec.
331. Gain or loss to shareholder in corporate
liquidations.(!1)
332. Complete liquidations of subsidiaries.
[333. Repealed.]
334. Basis of property received in liquidations.
AMENDMENTS
1986 - Pub. L. 99-514, title VI, Sec. 631(e)(16), Oct. 22, 1986,
100 Stat. 2275, struck out item 333 "Election as to recognition of
gain in certain liquidations".
-FOOTNOTE-
(!1) So in original. Does not conform to section catchline.
-End-
-CITE-
26 USC Sec. 331 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART II - CORPORATE LIQUIDATIONS
Subpart A - Effects on Recipients
-HEAD-
Sec. 331. Gain or loss to shareholders in corporate liquidations
-STATUTE-
(a) Distributions in complete liquidation treated as exchanges
Amounts received by a shareholder in a distribution in complete
liquidation of a corporation shall be treated as in full payment in
exchange for the stock.
(b) Nonapplication of section 301
Section 301 (relating to effects on shareholder of distributions
of property) shall not apply to any distribution of property (other
than a distribution referred to in paragraph (2)(B) of section
316(b)) in complete liquidation.
(c) Cross reference
For general rule for determination of the amount of gain or
loss recognized, see section 1001.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 101; Pub. L. 88-272, title II,
Sec. 225(f)(2), Feb. 26, 1964, 78 Stat. 88; Pub. L. 94-455, title
XIX, Sec. 1901(b)(28)(A), Oct. 4, 1976, 90 Stat. 1799; Pub. L.
97-248, title II, Sec. 222(a), (e)(1)(B), Sept. 3, 1982, 96 Stat.
478, 480.)
-MISC1-
AMENDMENTS
1982 - Subsec. (a). Pub. L. 97-248, Sec. 222(a), substituted
provisions that amounts received by a shareholder in a distribution
in complete liquidation of a corporation shall be treated as in
full payment in exchange for the stock for provisions that, in
complete liquidations, amounts distributed shall be treated as in
full payment in exchange for the stock, while amounts distributed
in partial liquidation shall be treated as in part or full payment
in exchange for the stock.
Subsec. (b). Pub. L. 97-248, Sec. 222(e)(1)(B), struck out
"partial or" before "complete liquidation".
1976 - Subsec. (c). Pub. L. 94-455 substituted "reference" for
"references" in heading and struck out cross reference relating to
general rule for determination of the amount of gain or loss to the
distributee and substituted "section 1001" for "section 1002".
1964 - Subsec. (b). Pub. L. 88-272 inserted "(other than a
distribution referred to in paragraph (2)(B) of section 316(b))".
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-248 applicable to distributions after
Aug. 31, 1982, with exceptions for certain partial liquidations,
see section 222(f) of Pub. L. 97-248, set out as a note under
section 302 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-455 effective for taxable years beginning
after Dec. 31, 1976, see section 1901(d) of Pub. L. 94-455, set out
as a note under section 2 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-272 applicable to distribution made in
any taxable year of the distributing corporation beginning after
Dec. 31, 1963, see section 225(l) of Pub. L. 88-272, set out as a
note under section 316 of this title.
LIQUIDATIONS BEFORE JANUARY 1, 1966
Section 225(h) of Pub. L. 88-272 provided that in the case of
corporations referred to in former subsec. (g)(3) of this section
the amendments made by section 225 of Pub. L. 88-272 do not apply
if there is a complete liquidation of such corporation and if the
distribution of all the property under such liquidation occurs
before Jan. 1, 1966, except for certain liquidations to which
section 332 of this title applies.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 302, 453, 1246, 1362,
6162 of this title.
-End-
-CITE-
26 USC Sec. 332 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART II - CORPORATE LIQUIDATIONS
Subpart A - Effects on Recipients
-HEAD-
Sec. 332. Complete liquidations of subsidiaries
-STATUTE-
(a) General rule
No gain or loss shall be recognized on the receipt by a
corporation of property distributed in complete liquidation of
another corporation.
(b) Liquidations to which section applies
For purposes of this section, a distribution shall be considered
to be in complete liquidation only if -
(1) the corporation receiving such property was, on the date of
the adoption of the plan of liquidation, and has continued to be
at all times until the receipt of the property, the owner of
stock (in such other corporation) meeting the requirements of
section 1504(a)(2); and either
(2) the distribution is by such other corporation in complete
cancellation or redemption of all its stock, and the transfer of
all the property occurs within the taxable year; in such case the
adoption by the shareholders of the resolution under which is
authorized the distribution of all the assets of such corporation
in complete cancellation or redemption of all its stock shall be
considered an adoption of a plan of liquidation, even though no
time for the completion of the transfer of the property is
specified in such resolution; or
(3) such distribution is one of a series of distributions by
such other corporation in complete cancellation or redemption of
all its stock in accordance with a plan of liquidation under
which the transfer of all the property under the liquidation is
to be completed within 3 years from the close of the taxable year
during which is made the first of the series of distributions
under the plan, except that if such transfer is not completed
within such period, or if the taxpayer does not continue
qualified under paragraph (1) until the completion of such
transfer, no distribution under the plan shall be considered a
distribution in complete liquidation.
If such transfer of all the property does not occur within the
taxable year, the Secretary may require of the taxpayer such bond,
or waiver of the statute of limitations on assessment and
collection, or both, as he may deem necessary to insure, if the
transfer of the property is not completed within such 3-year
period, or if the taxpayer does not continue qualified under
paragraph (1) until the completion of such transfer, the assessment
and collection of all income taxes then imposed by law for such
taxable year or subsequent taxable years, to the extent
attributable to property so received. A distribution otherwise
constituting a distribution in complete liquidation within the
meaning of this subsection shall not be considered as not
constituting such a distribution merely because it does not
constitute a distribution or liquidation within the meaning of the
corporate law under which the distribution is made; and for
purposes of this subsection a transfer of property of such other
corporation to the taxpayer shall not be considered as not
constituting a distribution (or one of a series of distributions)
in complete cancellation or redemption of all the stock of such
other corporation, merely because the carrying out of the plan
involves (A) the transfer under the plan to the taxpayer by such
other corporation of property, not attributable to shares owned by
the taxpayer, on an exchange described in section 361, and (B) the
complete cancellation or redemption under the plan, as a result of
exchanges described in section 354, of the shares not owned by the
taxpayer.
(c) Deductible liquidating distributions of regulated investment
companies and real estate investment trusts
If a corporation receives a distribution from a regulated
investment company or a real estate investment trust which is
considered under subsection (b) as being in complete liquidation of
such company or trust, then, notwithstanding any other provision of
this chapter, such corporation shall recognize and treat as a
dividend from such company or trust an amount equal to the
deduction for dividends paid allowable to such company or trust by
reason of such distribution.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 102; Pub. L. 94-455, title XIX,
Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 99-514,
title VI, Sec. 631(e)(2), title XVIII, Sec. 1804(e)(6)(A), Oct. 22,
1986, 100 Stat. 2273, 2803; Pub. L. 105-277, div. J, title III,
Sec. 3001(a), (b)(1), Oct. 21, 1998, 112 Stat. 2681-904.)
-MISC1-
AMENDMENTS
1998 - Subsec. (b). Pub. L. 105-277, Sec. 3001(b)(1), substituted
"this section" for "subsection (a)" in introductory provisions.
Subsec. (c). Pub. L. 105-277, Sec. 3001(a), added subsec. (c).
1986 - Subsec. (b)(1). Pub. L. 99-514, Sec. 1804(e)(6)(A),
amended par. (1) generally. Prior to amendment, par. (1) read as
follows: "the corporation receiving such property was, on the date
of the adoption of the plan of liquidation, and has continued to be
at all times until the receipt of the property, the owner of stock
(in such other corporation) possessing at least 80 percent of the
total combined voting power of all classes of stock entitled to
vote and the owner of at least 80 percent of the total number of
shares of all other classes of stock (except nonvoting stock which
is limited and preferred as to dividends); and either".
Subsec. (c). Pub. L. 99-514, Sec. 631(e)(2), struck out subsec.
(c) containing special rule for indebtedness of subsidiary to
parent in relation to complete liquidations of subsidiaries.
1976 - Subsec. (b). Pub. L. 94-455 struck out "or his delegate"
after "Secretary".
EFFECTIVE DATE OF 1998 AMENDMENT
Pub. L. 105-277, div. J, title III, Sec. 3001(c), Oct. 21, 1998,
112 Stat. 2681-904, provided that: "The amendments made by this
section [amending this section and section 334 of this title] shall
apply to distributions after May 21, 1998."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 631(e)(2) of Pub. L. 99-514 applicable to
any distribution in complete liquidation, and any sale or exchange,
made by a corporation after July 31, 1986, unless such corporation
is completely liquidated before Jan. 1, 1987, any transaction
described in section 338 of this title for which the acquisition
date occurs after Dec. 31, 1986, and any distribution, not in
complete liquidation, made after Dec. 31, 1986, with exceptions and
special and transitional rules, see section 633 of Pub. L. 99-514,
set out as an Effective Date note under section 336 of this title.
Section 1804(e)(6)(B) of Pub. L. 99-514 provided that:
"(i) In general. - Except as provided in clause (iii), the
amendment made by subparagraph (A) [amending this section] shall
apply with respect to plans of complete liquidation adopted after
March 28, 1985.
"(ii) Certain distributions made after december 31, 1984. -
Except as provided in clause (iii), the amendment made by
subparagraph (A) shall also apply with respect to plans of complete
liquidations adopted on or before March 28, 1985, pursuant to which
any distribution is made in a taxable year beginning after December
31, 1984 (December 31, 1983, in the case of an affiliated group to
which an election under section 60(b)(7) of the Tax Reform Act of
1984 [Pub. L. 98-369, set out as a note under section 1504 of this
title] applies), but only if the liquidating corporation and any
corporation which receives a distribution in complete liquidation
of such corporation are members of an affiliated group of
corporations filing a consolidated return for the taxable year
which includes the date of the distribution.
"(iii) Transitional rule for affiliated groups. - The amendment
made by subparagraph (A) shall not apply with respect to plans of
complete liquidation if the liquidating corporation is a member of
an affiliated group of corporations under section 60(b) (2), (5),
(6), or (8) of the Tax Reform Act of 1984 [Pub. L. 98-369, set out
as a note under section 1504 of this title], for all taxable years
which include the date of any distribution pursuant to such plan."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 168, 197, 334, 336, 337,
367, 368, 381, 1245, 1250, 4978, 6038B of this title.
-End-
-CITE-
26 USC Sec. 333 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART II - CORPORATE LIQUIDATIONS
Subpart A - Effects on Recipients
-HEAD-
[Sec. 333. Repealed. Pub. L. 99-514, title VI, Sec. 631(e)(3), Oct.
22, 1986, 100 Stat. 2273]
-MISC1-
Section, acts Aug. 16, 1954, ch. 736, 68A Stat. 103; Feb. 26,
1964, Pub. L. 88-272, title II, Sec. 225(g), 78 Stat. 89; Oct. 4,
1976, Pub. L. 94-455, title XIX, Secs. 1901(a)(44), 1906(b)(13)(A),
1951(b)(6)(A), 90 Stat. 1772, 1834, 1838, related to election as to
recognition of gain in certain liquidations.
EFFECTIVE DATE OF REPEAL
Repeal applicable to any distribution in complete liquidation,
and any sale or exchange, made by a corporation after July 31,
1986, unless such corporation is completely liquidated before Jan.
1, 1987, any transaction described in section 338 of this title for
which the acquisition date occurs after Dec. 31, 1986, and any
distribution, not in complete liquidation, made after Dec. 31,
1986, with exceptions and special and transitional rules, see
section 633 of Pub. L. 99-514, set out as an Effective Date note
under section 336 of this title.
-End-
-CITE-
26 USC Sec. 334 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART II - CORPORATE LIQUIDATIONS
Subpart A - Effects on Recipients
-HEAD-
Sec. 334. Basis of property received in liquidations
-STATUTE-
(a) General rule
If property is received in a distribution in complete
liquidation, and if gain or loss is recognized on receipt of such
property, then the basis of the property in the hands of the
distributee shall be the fair market value of such property at the
time of the distribution.
(b) Liquidation of subsidiary
(1) In general
If property is received by a corporate distributee in a
distribution in a complete liquidation to which section 332
applies (or in a transfer described in section 337(b)(1)), the
basis of such property in the hands of such distributee shall be
the same as it would be in the hands of the transferor; except
that, in any case in which gain or loss is recognized by the
liquidating corporation with respect to such property, the basis
of such property in the hands of such distributee shall be the
fair market value of the property at the time of the
distribution.
(2) Corporate distributee
For purposes of this subsection, the term "corporate
distributee" means only the corporation which meets the stock
ownership requirements specified in section 332(b).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 104; Pub. L. 89-809, title II,
Sec. 202(a), (b), Nov. 13, 1966, 80 Stat. 1576; Pub. L. 94-455,
title XIX, Secs. 1901(a)(45), 1906(b)(13)(A), Oct. 4, 1976, 90
Stat. 1772, 1834; Pub. L. 97-248, title II, Secs. 222(e)(1)(C),
224(b), Sept. 3, 1982, 96 Stat. 480, 488; Pub. L. 99-514, title VI,
Sec. 631(e)(4), Oct. 22, 1986, 100 Stat. 2273; Pub. L. 100-647,
title I, Sec. 1006(e)(6), Nov. 10, 1988, 102 Stat. 3401; Pub. L.
105-277, div. J, title III, Sec. 3001(b)(2), Oct. 21, 1998, 112
Stat. 2681-904.)
-MISC1-
AMENDMENTS
1998 - Subsec. (b)(1). Pub. L. 105-277 substituted "section 332"
for "section 332(a)".
1988 - Subsec. (b). Pub. L. 100-647 amended subsec. (b)
generally. Prior to amendment, subsec. (b) read as follows:
"(1) Distribution in complete liquidation. - If property is
received by a corporation in a distribution in a complete
liquidation to which section 332(a) applies, the basis of the
property in the hands of the distributee shall be the same as it
would be in the hands of the transferor.
"(2) Transfers to which section 332(c) applies. - If property is
received by a corporation in a transfer to which section 332(c)
applies, the basis of the property in the hands of the transferee
shall be the same as it would be in the hands of the transferor.
"(3) Distributee defined. - For purposes of this subsection, the
term 'distributee' means only the corporation which meets the
80-percent stock ownership requirements specified in section
332(b)."
1986 - Subsec. (a). Pub. L. 99-514, Sec. 631(e)(4)(A), struck out
"(other than a distribution to which section 333 applies)" after
"liquidation".
Subsec. (c). Pub. L. 99-514, Sec. 631(e)(4)(B), struck out
subsec. (c) relating to property received in liquidation under
section 333.
1982 - Subsec. (a). Pub. L. 97-248, Sec. 222(e)(1)(C), struck out
"partial or" before "complete liquidation".
Subsec. (b). Pub. L. 97-248, Sec. 224(b), struck out heading to
par. (1) "In general", redesignated first sentence as par. (1) with
heading "Distribution in complete liquidation", in par. (1) as so
redesignated substituted reference to section 332(a) for reference
to section 332(b) relating to a distribution in complete
liquidation, struck out reference to par. (2) as an exception to
the determination of basis, redesignated second sentence as par.
(2) with heading "Transfers to which section 332(c) applies", in
par. (2) as so redesignated struck out reference to par. (2) as an
exception to the determination of basis, struck out par. (2) which
had provided that if property was received by a corporation in a
distribution in complete liquidation of another corporation and if
the distribution was pursuant to a plan of liquidation adopted not
more than 2 years after the date of the transaction described
below, or in the case of a series of transactions, the date of the
last such transaction, and stock of the distributing corporation
possessing at least 80 percent of the total combined voting power
of all classes of stock entitled to vote, and at least 80 percent
of the total number of shares of all other classes of stock (except
nonvoting stock which was limited and preferred as to dividends),
was acquired by the distributee by purchase (as defined in par.
(3)) during a 12-month period beginning with the earlier of the
date of the first acquisition by purchase of such stock, or if any
of such stock was acquired in an acquisition which is a purchase
within the meaning of second sentence of par. (3), the date on
which the distributee was first considered under section 318(a) as
owning stock owned by the corporation from which such acquisition
was made, then the basis of the property in the hands of the
distributee would be the adjusted basis of the stock with respect
to which the distribution was made, and under regulations
prescribed by the Secretary, proper adjustment in the adjusted
basis of any stock would be made for any distribution made to the
distributee with respect to such stock before the adoption of the
plan of liquidation, for any money received, for any liabilities
assumed or subject to which the property was received, and for
other items, and struck out par. (3) which provided that "purchase"
meant any acquisition of stock, but only if the basis of the stock
in the hands of the distributee was not determined in whole or in
part by reference to the adjusted basis of such stock in the hands
of the person from whom acquired, or under section 1014(a) of this
title the stock was not acquired in an exchange to which section
351 of this title applies, and the stock was not acquired from a
person the ownership of whose stock would, under section 318(a) of
this title, be attributed to the person acquiring such stock, but
that "purchase" also meant an acquisition of stock from a
corporation when ownership of such stock would be attributed under
section 318(a) to the person acquiring such stock, if the stock of
such corporation by reason of which such ownership would be
attributed was acquired by purchase, and redesignated par. (4) as
(3).
1976 - Subsec. (b)(2). Pub. L. 94-455, Secs. 1901(a)(45),
1906(b)(13)(A), struck out in subpar. (A) provision relating to
distributions made pursuant to a plan of liquidation adopted on or
before June 22, 1954, and in provisions following subpar. (B)(ii)
"or his delegate" after "Secretary".
1966 - Subsec. (b)(2)(B). Pub. L. 89-809, Sec. 202(b), inserted
provisions for the determination of the date on which to commence
the running of the 12-month period during which the distributee
must have acquired the stock by purchase by adding clauses (i) and
(ii).
Subsec. (b)(3). Pub. L. 89-809, Sec. 202(a), inserted provision
that, for purposes of par. (2)(B), "purchase" also means an
acquisition of stock from a corporation when ownership of such
stock would be attributed under section 318(a) to the person
acquiring such stock, if the stock of such corporation by reason of
which such ownership would be attributed was acquired by purchase.
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-277 applicable to distributions after
May 21, 1998, see section 3001(c) of Pub. L. 105-277, set out as a
note under section 332 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to any distribution in
complete liquidation, and any sale or exchange, made by a
corporation after July 31, 1986, unless such corporation is
completely liquidated before Jan. 1, 1987, any transaction
described in section 338 of this title for which the acquisition
date occurs after Dec. 31, 1986, and any distribution, not in
complete liquidation, made after Dec. 31, 1986, with exceptions and
special and transitional rules, see section 633 of Pub. L. 99-514,
set out as an Effective Date note under section 336 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by section 222(e)(1)(C) of Pub. L. 97-248 applicable to
distributions after Aug. 31, 1982, with exceptions for certain
partial liquidations, see section 222(f) of Pub. L. 97-248, set out
as a note under section 302 of this title.
Amendment by section 224(b) of Pub. L. 97-248 applicable to any
target corporation with respect to which the acquisition date
occurs after Aug. 31, 1982, with special rules for certain
acquisitions before Sept. 1, 1982, and certain acquisitions of
financial institutions in which there was a binding contract on
July 22, 1982, to acquire control, see section 224(d) of Pub. L.
97-248, set out as an Effective Date note under section 338 of this
title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(a)(45) of Pub. L. 94-455 effective for
taxable years beginning after Dec. 31, 1976, see section 1901(d) of
Pub. L. 94-455, set out as a note under section 2 of this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Section 202(d) of Pub. L. 89-809 provided that: "The amendment
made by subsection (a) [amending this section] shall apply only
with respect to acquisitions of stock after December 31, 1965. The
amendment made by subsections (b) and (c) [amending this section
and section 453 of this title] shall apply only with respect to
distributions made after the date of the enactment of this Act
[Nov. 13, 1966]."
ADJUSTMENT FOR LIABILITY TO BASIS OF PROPERTY DISTRIBUTED IN
COMPLETE LIQUIDATION OF CORPORATION PRIOR TO JULY 1, 1957;
DEDUCTION FOR UNCOMPENSATED LIABILITY
Pub. L. 93-497, Sec. 3, Oct. 29, 1974, 88 Stat. 1534, as amended
by Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided
that:
"(a) Notwithstanding the provisions of section 334 of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954] (relating to
basis of property received in liquidations), no adjustment to the
basis of any property distributed in complete liquidation of a
corporation prior to July 1, 1957, shall be made for any liability
if -
"(1) the distributor and distributee did not consider the
liability relevant to the value of the stock with respect to
which the distribution was made,
"(2) the distributor and distributee reasonably relied upon a
decision of a United States district court specifically
adjudicating the amount of the liability and its affirmance by
the appropriate United States court of appeals, and
"(3) the amount of liability so adjudicated was not greater
than would be compensated for by insurance.
The provisions of this section apply without regard to whether such
decision was subsequently reversed or modified by that United
States court of appeals following distribution of such property in
complete liquidation.
"(b) To the extent that the liability described in subsection (a)
is not compensated for by insurance or otherwise, the amount
thereof shall be allowed as a deduction under the appropriate
provision of the Internal Revenue Code of 1986 for the taxable year
in which payment thereof was made and shall be effective in
determining income tax liabilities of all taxable years prior
thereto."
-End-
-CITE-
26 USC Subpart B - Effects on Corporation 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART II - CORPORATE LIQUIDATIONS
Subpart B - Effects on Corporation
-HEAD-
SUBPART B - EFFECTS ON CORPORATION
-MISC1-
Sec.
336. Gain or loss recognized on property distributed in
complete liquidation.
337. Nonrecognition for property distributed to parent in
complete liquidation of subsidiary.
338. Certain stock purchases treated as asset acquisitions.
AMENDMENTS
1986 - Pub. L. 99-514, title VI, Sec. 631(e)(17), Oct. 22, 1986,
100 Stat. 2275, substituted "Gain or loss recognized on property
distributed in complete liquidation" for "General rule" in item 336
and "Nonrecognition for property distributed to parent in complete
liquidation of subsidiary" for "Gain or loss on sales or exchanges
in connection with certain liquidations" in item 337.
1982 - Pub. L. 97-248, title II, Sec. 224(c)(9), Sept. 3, 1982,
96 Stat. 489, substituted "Certain stock purchases treated as asset
acquisitions" for "Effect on earnings and profits" in item 338.
-SECREF-
SUBPART REFERRED TO IN OTHER SECTIONS
This subpart is referred to in section 361 of this title.
-End-
-CITE-
26 USC Sec. 336 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART II - CORPORATE LIQUIDATIONS
Subpart B - Effects on Corporation
-HEAD-
Sec. 336. Gain or loss recognized on property distributed in
complete liquidation
-STATUTE-
(a) General rule
Except as otherwise provided in this section or section 337, gain
or loss shall be recognized to a liquidating corporation on the
distribution of property in complete liquidation as if such
property were sold to the distributee at its fair market value.
(b) Treatment of liabilities
If any property distributed in the liquidation is subject to a
liability or the shareholder assumes a liability of the liquidating
corporation in connection with the distribution, for purposes of
subsection (a) and section 337, the fair market value of such
property shall be treated as not less than the amount of such
liability.
(c) Exception for liquidations which are part of a reorganization
For provision providing that this subpart does not apply to
distributions in pursuance of a plan of reorganization, see
section 361(c)(4).
(d) Limitations on recognition of loss
(1) No loss recognized in certain distributions to related
persons
(A) In general
No loss shall be recognized to a liquidating corporation on
the distribution of any property to a related person (within
the meaning of section 267) if -
(i) such distribution is not pro rata, or
(ii) such property is disqualified property.
(B) Disqualified property
For purposes of subparagraph (A), the term "disqualified
property" means any property which is acquired by the
liquidating corporation in a transaction to which section 351
applied, or as a contribution to capital, during the 5-year
period ending on the date of the distribution. Such term
includes any property if the adjusted basis of such property is
determined (in whole or in part) by reference to the adjusted
basis of property described in the preceding sentence.
(2) Special rule for certain property acquired in certain
carryover basis transactions
(A) In general
For purposes of determining the amount of loss recognized by
any liquidating corporation on any sale, exchange, or
distribution of property described in subparagraph (B), the
adjusted basis of such property shall be reduced (but not below
zero) by the excess (if any) of -
(i) the adjusted basis of such property immediately after
its acquisition by such corporation, over
(ii) the fair market value of such property as of such
time.
(B) Description of property
(i) In general
For purposes of subparagraph (A), property is described in
this subparagraph if -
(I) such property is acquired by the liquidating
corporation in a transaction to which section 351 applied
or as a contribution to capital, and
(II) the acquisition of such property by the liquidating
corporation was part of a plan a principal purpose of which
was to recognize loss by the liquidating corporation with
respect to such property in connection with the
liquidation.
Other property shall be treated as so described if the
adjusted basis of such other property is determined (in whole
or in part) by reference to the adjusted basis of property
described in the preceding sentence.
(ii) Certain acquisitions treated as part of plan
For purposes of clause (i), any property described in
clause (i)(I) acquired by the liquidated corporation after
the date 2 years before the date of the adoption of the plan
of complete liquidation shall, except as provided in
regulations, be treated as acquired as part of a plan
described in clause (i)(II).
(C) Recapture in lieu of disallowance
The Secretary may prescribe regulations under which, in lieu
of disallowing a loss under subparagraph (A) for a prior
taxable year, the gross income of the liquidating corporation
for the taxable year in which the plan of complete liquidation
is adopted shall be increased by the amount of the disallowed
loss.
(3) Special rule in case of liquidation to which section 332
applies
In the case of any liquidation to which section 332 applies, no
loss shall be recognized to the liquidating corporation on any
distribution in such liquidation. The preceding sentence shall
apply to any distribution to the 80-percent distributee only if
subsection (a) or (b)(1) of section 337 applies to such
distribution.
(e) Certain stock sales and distributions may be treated as asset
transfers
Under regulations prescribed by the Secretary, if -
(1) a corporation owns stock in another corporation meeting the
requirements of section 1504(a)(2), and
(2) such corporation sells, exchanges, or distributes all of
such stock,
an election may be made to treat such sale, exchange, or
distribution as a disposition of all of the assets of such other
corporation, and no gain or loss shall be recognized on the sale,
exchange, or distribution of such stock.
-SOURCE-
(Added Pub. L. 99-514, title VI, Sec. 631(a), Oct. 22, 1986, 100
Stat. 2269; amended Pub. L. 100-647, title I, Secs. 1006(e)(1)-(3),
(21)(A), 1018(d)(5)(D), Nov. 10, 1988, 102 Stat. 3400, 3403, 3580.)
-MISC1-
PRIOR PROVISIONS
A prior section 336, acts Aug. 16, 1954, ch. 736, 68A Stat. 106;
Apr. 2, 1980, Pub. L. 96-223, title IV, Sec. 403(b)(1), 94 Stat.
304; Oct. 19, 1980, Pub. L. 96-471, Sec. 2(b)(1), (c)(1), 94 Stat.
2253, 2254; Sept. 3, 1982, Pub. L. 97-248, title II, Sec. 222(b),
(e)(1)(D), 224(c)(4), 96 Stat. 478, 480, 489, related to
distributions of property in liquidation, prior to repeal by Pub.
L. 99-514, Sec. 631(a).
AMENDMENTS
1988 - Subsec. (b). Pub. L. 100-647, Sec. 1006(e)(21)(A),
substituted "liabilities" for "liabilities in excess of basis" in
heading.
Subsec. (c). Pub. L. 100-647, Sec. 1018(d)(5)(D), substituted
"liquidations which are part of a reorganization" for "certain
liquidations to which part III applies" in heading and amended text
generally. Prior to amendment, text read as follows: "This section
shall not apply with respect to any distribution of property to the
extent there is nonrecognition of gain or loss with respect to such
property to the recipient under part III."
Subsec. (d)(2)(B)(ii). Pub. L. 100-647, Sec. 1006(e)(1), amended
cl. (ii) generally. Prior to amendment, cl. (ii) read as follows:
"For purposes of clause (i), any property described in clause
(i)(I) acquired by the liquidating corporation during the 2-year
period ending on the date of the adoption of the plan of complete
liquidation shall, except as provided in regulations, be treated as
part of a plan described in clause (i)(II)."
Subsec. (d)(3). Pub. L. 100-647, Sec. 1006(e)(2), inserted at end
"The preceding sentence shall apply to any distribution to the
80-percent distributee only if subsection (a) or (b)(1) of section
337 applies to such distribution."
Subsec. (e). Pub. L. 100-647, Sec. 1006(e)(3), substituted "an
election may be made" for "such corporation may elect" in
concluding provisions.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE
Section 633 of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1006(g), Nov. 10, 1988, 102 Stat. 3407, provided
that:
"(a) General Rule. - Except as otherwise provided in this
section, the amendments made by this subtitle [subtitle D (Secs.
631-634) of title VI of Pub. L. 99-514, enacting this section and
section 337 of this title, amending sections 26, 311, 312, 332,
334, 338, 341, 346, 367, 453, 453B, 467, 852, 897, 1056, 1248,
1255, 1276, 1363, 1366, 1374, and 1375 of this title, and repealing
former sections 333, 336, and 337 of this title] shall apply to -
"(1) any distribution in complete liquidation, and any sale or
exchange, made by a corporation after July 31, 1986, unless such
corporation is completely liquidated before January 1, 1987,
"(2) any transaction described in section 338 of the Internal
Revenue Code of 1986 for which the acquisition date occurs after
December 31, 1986, and
"(3) any distribution (not in complete liquidation) made after
December 31, 1986.
"(b) Built-In Gains of S Corporations. -
"(1) In general. - The amendments made by section 632 (other
than subsection (b) thereof) [amending sections 26, 1366, 1374,
and 1375 of this title] shall apply to taxable years beginning
after December 31, 1986, but only in cases where the return for
the taxable year is filed pursuant to an S election made after
December 31, 1986.
"(2) Application of prior law. - In the case of any taxable
year of an S corporation which begins after December 31, 1986,
and to which the amendments made by section 632 (other than
subsection (b) thereof) do not apply, paragraph (1) of section
1374(b) of the Internal Revenue Code of 1954 (as in effect on the
date before the date of the enactment of this Act [Oct. 22,
1986]) shall be applied as if it read as follows:
" '(1) an amount equal to 34 percent of the amount by which
the net capital gain of the corporation for the taxable year
exceeds $25,000, or'[.]
"(c) Exception for Certain Plans of Liquidation and Binding
Contracts. -
"(1) In general. - The amendments made by this subtitle shall
not apply to -
"(A) any distribution or sale or exchange made pursuant to a
plan of liquidation adopted before August 1, 1986, if the
liquidating corporation is completely liquidated before January
1, 1988,
"(B) any distribution or sale or exchange made by any
corporation if more than 50 percent of the voting stock (by
value) of such corporation is acquired on or after August 1,
1986, pursuant to a written binding contract in effect before
such date and if such corporation is completely liquidated
before January 1, 1988,
"(C) any distribution or sale or exchange made by any
corporation if substantially all of the assets of such
corporation are sold on or after August 1, 1986, pursuant to 1
or more written binding contracts in effect before such date
and if such corporation is completely liquidated before January
1, 1988, or
"(D) any transaction described in section 338 of the Internal
Revenue Code of 1986 with respect to any target corporation if
a qualified stock purchase of such target corporation is made
on or after August 1, 1986, pursuant to a written binding
contract in effect before such date and the acquisition date
(within the meaning of such section 338) is before January 1,
1988.
"(2) Special rule for certain actions taken before november 20,
1985. - For purposes of paragraph (1), transactions shall be
treated as pursuant to a plan of liquidation adopted before
August 1, 1986, if -
"(A) before November 20, 1985 -
"(i) the board of directors of the liquidating corporation
adopted a resolution to solicit shareholder approval for a
transaction of a kind described in section 336 or 337, or
"(ii) the shareholders or board of directors have approved
such a transaction,
"(B) before November 20, 1985 -
"(i) there has been an offer to purchase a majority of the
voting stock of the liquidating corporation, or
"(ii) the board of directors of the liquidating corporation
has adopted a resolution approving an acquisition or
recommending the approval of an acquisition to the
shareholders, or
"(C) before November 20, 1985, a ruling request was submitted
to the Secretary of the Treasury or his delegate with respect
to a transaction of a kind described in section 336 or 337 of
the Internal Revenue Code of 1954 (as in effect before the
amendments made by this subtitle).
For purposes of the preceding sentence, any action taken by the
board of directors or shareholders of a corporation with respect
to any subsidiary of such corporation shall be treated as taken
by the board of directors or shareholders of such subsidiary.
"(d) Transitional Rule for Certain Small Corporations. -
"(1) In general. - In the case of the complete liquidation
before January 1, 1989, of a qualified corporation, the
amendments made by this subtitle shall not apply to the
applicable percentage of each gain or loss which (but for this
paragraph) would be recognized by the liquidating corporation by
reason of the amendments made by this subtitle. Section 333 of
the Internal Revenue Code of 1954 (as in effect on the day before
the date of the enactment of this Act [Oct. 22, 1986]) shall
continue to apply to any complete liquidation described in the
preceding sentence.
"(2) Paragraph (1) not to apply to certain items. - Paragraph
(1) shall not apply to -
"(A) any gain or loss which is an ordinary gain or loss
(determined without regard to section 1239 of the Internal
Revenue Code of 1986),
"(B) any gain or loss on a capital asset held for not more
than 6 months, and
"(C) any gain on an asset acquired by the qualified
corporation if -
"(i) the basis of such asset in the hands of the qualified
corporation is determined (in whole or in part) by reference
to the basis of such asset in the hands of the person from
whom acquired, and
"(ii) a principal purpose for the transfer of such asset to
the qualified corporation was to secure the benefits of this
subsection.
"(3) Applicable percentage. - For purposes of this subsection,
the term 'applicable percentage' means -
"(A) 100 percent if the applicable value of the qualified
corporation is less than $5,000,000, or
"(B) 100 percent reduced by an amount which bears the same
ratio to 100 percent as -
"(i) the excess of the applicable value of the corporation
over $5,000,000, bears to
"(ii) $5,000,000.
"(4) Applicable value. - For purposes of this subsection, the
applicable value is the fair market value of all of the stock of
the corporation on the date of the adoption of the plan of
complete liquidation (or if greater, on August 1, 1986).
"(5) Qualified corporation. - For purposes of this subsection,
the term 'qualified corporation' means any corporation if -
"(A) on August 1, 1986, and at all times thereafter before
the corporation is completely liquidated, more than 50 percent
(by value) of the stock in such corporation is held by a
qualified group, and
"(B) the applicable value of such corporation does not exceed
$10,000,000.
"(6) Definitions and special rules. - For purposes of this
subsection -
"(A) Qualified group. -
"(i) In general. - Except as provided in clause (ii), the
term 'qualified group' means any group of 10 or fewer
qualified persons who at all times during the 5-year period
ending on the date of the adoption of the plan of complete
liquidation (or, if shorter, the period during which the
corporation or any predecessor was in existence) owned (or
was treated as owning under the rules of subparagraph (C))
more than 50 percent (by value) of the stock in such
corporation.
"(ii) 5-year ownership requirement not to apply in certain
cases. - In the case of -
"(I) any complete liquidation pursuant to a plan of
liquidation adopted before March 31, 1988,
"(II) any distribution not in liquidation made before March
31, 1988,
"(III) an election to be an S corporation filed before March
31, 1988, or
"(IV) a transaction described in section 338 of the Internal
Revenue Code of 1986 where the acquisition date (within the
meaning of such section 338) is before March 31, 1988,
the term 'qualified group' means any group of 10 or fewer
qualified persons.
"(B) Qualified person. - The term 'qualified person' means -
"(i) an individual,
"(ii) an estate, or
"(iii) any trust described in clause (ii) or clause (iii)
of section 1361(c)(2)(A) of the Internal Revenue Code of
1986.
"(C) Attribution rules. -
"(i) In general. - Any stock owned by a corporation, trust
(other than a trust referred to in subparagraph (B)(iii)[)],
or partnership shall be treated as owned proportionately by
its shareholders, beneficiaries, or partners, and shall not
be treated as owned by such corporation, trust, or
partnership. Stock considered to be owned by a person by
reason of the application of the preceding sentence shall,
for purposes of applying such sentence, be treated as
actually owned by such person.
"(ii) Family members. - Stock owned (or treated as owned)
by members of the same family (within the meaning of section
318(a)(1) of the Internal Revenue Code of 1986) shall be
treated as owned by 1 person, and shall be treated as owned
by such 1 person for any period during which it was owned (or
treated as owned) by any such member.
"(iii) Treatment of certain trusts. - Stock owned (or
treated as owned) by the estate of any decedent or by any
trust referred to in subparagraph (B)(iii) with respect to
such decedent shall be treated as owned by 1 person and shall
be treated as owned by such 1 person for the period during
which it was owned (or treated as owned) by such estate or
any such trust or by the decedent.
"(D) Special holding period rules. - Any property acquired by
reason of the death of an individual shall be treated as owned
at all times during which such property was owned (or treated
as owned) by the decedent.
"(E) Controlled group of corporations. - All members of the
same controlled group (as defined in section 267(f)(1) of such
Code) shall be treated as 1 corporation for purposes of
determining whether any of such corporations met the
requirement of paragraph (5)(B) and for purposes of determining
the applicable percentage with respect to any of such
corporations. For purposes of the preceding sentence, an S
corporation shall not be treated as a member of a controlled
group unless such corporation was a C corporation for its
taxable year which includes August 1, 1986, or it was not
described for such taxable year in paragraph (1) or (2) of
section 1374(c) of such Code (as in effect on the day before
the date of the enactment of this Act [Oct. 22, 1986]).
"(7) Section 338 transactions. - The provisions of this
subsection shall also apply in the case of a transaction
described in section 338 of the Internal Revenue Code of 1986
where the acquisition date (within the meaning of such section
338) is before January 1, 1989.
"(8) Application of section 1374. - Rules similar to the rules
of this subsection shall apply for purposes of applying section
1374 of the Internal Revenue Code of 1986 (as amended by section
632) in the case of a qualified corporation which makes an
election to be an S corporation under section 1362 of such Code
before January 1, 1989, without regard to whether such
corporation is completely liquidated.
"(9) Application to nonliquidating distributions. - The
provisions of this subsection shall also apply in the case of any
distribution (not in complete liquidation) made by a qualified
corporation before January 1, 1989, without regard to whether
such corporation is completely liquidated.
"(e) Complete Liquidation Defined. - For purposes of this
section, a corporation shall be treated as completely liquidated if
all of the assets of such corporation are distributed in complete
liquidation, less assets retained to meet claims.
"(f) Other Transitional Rules. -
"(1) The amendments made by this subtitle shall not apply to
any liquidation of a corporation incorporated under the laws of
Pennsylvania on August 3, 1970, if -
"(A) the board of directors of such corporation approved a
plan of liquidation before January 1, 1986,
"(B) an agreement for the sale of a material portion of the
assets of such corporation was signed on May 9, 1986 (whether
or not the assets are sold in accordance with such agreement),
and
"(C) the corporation is completely liquidated on or before
December 31, 1988.
"(2) The amendments made by this subtitle shall not apply to
any liquidation (or deemed liquidation under section 338 of the
Internal Revenue Code of 1986) of a diversified financial
services corporation incorporated under the laws of Delaware on
May 9, 1929 (or any direct or indirect subsidiary of such
corporation), pursuant to a binding written contract entered into
on or before December 31, 1986; but only if the liquidation is
completed (or in the case of a section 338 election, the
acquisition date occurs) before January 1, 1988.
"(3) The amendments made by this subtitle shall not apply to
any distribution, or sale, or exchange -
"(A) of the assets owned (directly or indirectly) by a
testamentary trust established under the will of a decedent
dying on June 15, 1956, or its beneficiaries,
"(B) made pursuant to a court order in an action filed on
January 18, 1984, if such order -
"(i) is issued after July 31, 1986, and
"(ii) directs the disposition of the assets of such trust
and the division of the trust corpus into 3 separate
sub-trusts.
For purposes of the preceding sentence, an election under section
338(g) of the Internal Revenue Code of 1986 (or an election under
section 338(h)(10) of such Code qualifying as a section 337
liquidation pursuant to regulations prescribed by the Secretary
under section 1.338(h)(10)-1T(j)) made in connection with a sale
or exchange pursuant to a court order described in subparagraph
(B) shall be treated as a sale of [or] exchange.
"(4)(A) The amendments made by this subtitle shall not apply to
any distribution, or sale, or exchange -
"(i) if -
"(I) an option agreement to sell substantially all of the
assets of a selling corporation organized under the laws of
Massachusetts on October 20, 1976, is executed before August
1, 1986, the corporation adopts (by approval of its
shareholders) a conditional plan of liquidation before August
1, 1986 to become effective upon the exercise of such option
agreement (or modification thereto), and the assets are sold
pursuant to the exercise of the option (as originally
executed or subsequently modified provided that the purchase
price is not thereby increased), or
"(II) in the event that the optionee does not acquire
substantially all the assets of the corporation, the optionor
corporation sells substantially all its assets to another
purchaser at a purchase price not greater than that
contemplated by such option agreement pursuant to an
effective plan of liquidation, and
"(ii) the complete liquidation of the corporation occurs
within 12 months of the time the plan of liquidation becomes
effective, but in no event later than December 31, 1989.
"(B) For purposes of subparagraph (A), a distribution, or sale,
or exchange, of a distributee corporation (within the meaning of
section 337(c)(3) of the Internal Revenue Code of 1986) shall be
treated as satisfying the requirements of subparagraph (A) if its
subsidiary satisfies the requirements of subparagraph (A).
"(C) For purposes of section 56 of the Internal Revenue Code of
1986 (as amended by this Act), any gain or loss not recognized by
reason of this paragraph shall not be taken into account in
determining the adjusted net book income of the corporation.
"(5) In the case of a corporation incorporated under the laws
of Wisconsin on April 3, 1948 -
"(A) a voting trust established not later than December 31,
1987, shall qualify as a trust permitted as a shareholder of an
S corporation and shall be treated as only 1 shareholder if the
holders of beneficial interests in such voting trust are -
"(i) employees or retirees of such corporation, or
"(ii) in the case of stock or voting trust certificates
acquired from an employee or retiree of such corporation, the
spouse, child, or estate of such employee or retiree or a
trust created by such employee or retiree which is described
in section 1361(c)(2) of the Internal Revenue Code of 1986
(or treated as described in such section by reason of section
1361(d) of such Code), and
"(B) the amendment made by section 632 (other than subsection
(b) thereof) shall not apply to such corporation if it elects
to be an S corporation before January 1, 1989.
"(6) The amendments made by this subtitle shall not apply to
the liquidation of a corporation incorporated on January 26,
1982, under the laws of the State of Alabama with a principal
place of business in Colbert County, Alabama, but only if such
corporation is completely liquidated on or before December 31,
1987.
"(7) The amendments made by this subtitle shall not apply to
the acquisition by a Delaware bank holding company of all of the
assets of an Iowa bank holding company pursuant to a written
contract dated December 9, 1981.
"(8) The amendments made by this subtitle shall not apply to
the liquidation of a corporation incorporated under the laws of
Delaware on January 20, 1984, if more than 40 percent of the
stock of such corporation was acquired by purchase on June 11,
1986, and there was a tender offer with respect to all additional
outstanding shares of such corporation on July 29, 1986, but only
if the corporation is completely liquidated on or before December
31, 1987.
"(g) Treatment of Certain Distributions in Response To Hostile
Tender Offer. -
"(1) In general. - No gain or loss shall be recognized under
the Internal Revenue Code of 1986 to a corporation (hereinafter
in this subsection referred to as 'parent') on a qualified
distribution.
"(2) Qualified Distribution Defined. - For purposes of
paragraph (1) -
"(A) In general. - The term 'qualified distribution' means a
distribution -
"(i) by parent of all of the stock of a qualified
subsidiary in exchange for stock of parent which was acquired
for purposes of such exchange pursuant to a tender offer
dated February 16, 1982, and
"(ii) pursuant to a contract dated February 13, 1982, and
"(iii) which was made not more than 60 days after the board
of directors of parent recommended rejection of an
unsolicited tender offer to obtain control of parent.
"(B) Qualified subsidiary. - The term 'qualified subsidiary'
means a corporation created or organized under the laws of
Delaware on September 7, 1976, all of the stock of which was
owned by parent immediately before the qualified distribution."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 311, 337, 355, 6038B of
this title.
-End-
-CITE-
26 USC Sec. 337 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART II - CORPORATE LIQUIDATIONS
Subpart B - Effects on Corporation
-HEAD-
Sec. 337. Nonrecognition for property distributed to parent in
complete liquidation of subsidiary
-STATUTE-
(a) In general
No gain or loss shall be recognized to the liquidating
corporation on the distribution to the 80-percent distributee of
any property in a complete liquidation to which section 332
applies.
(b) Treatment of indebtedness of subsidiary, etc.
(1) Indebtedness of subsidiary to parent
If -
(A) a corporation is liquidated in a liquidation to which
section 332 applies, and
(B) on the date of the adoption of the plan of liquidation,
such corporation was indebted to the 80-percent distributee,
for purposes of this section and section 336, any transfer of
property to the 80-percent distributee in satisfaction of such
indebtedness shall be treated as a distribution to such
distributee in such liquidation.
(2) Treatment of tax-exempt distributee
(A) In general
Except as provided in subparagraph (B), paragraph (1) and
subsection (a) shall not apply where the 80-percent distributee
is an organization (other than a cooperative described in
section 521) which is exempt from the tax imposed by this
chapter.
(B) Exception where property will be used in unrelated business
(i) In general
Subparagraph (A) shall not apply to any distribution of
property to an organization described in section 511(a)(2)
if, immediately after such distribution, such organization
uses such property in an activity the income from which is
subject to tax under section 511(a).
(ii) Later disposition or change in use
If any property to which clause (i) applied is disposed of
by the organization acquiring such property, notwithstanding
any other provision of law, any gain (not in excess of the
amount not recognized by reason of clause (i)) shall be
included in such organization's unrelated business taxable
income. For purposes of the preceding sentence, if such
property ceases to be used in an activity referred to in
clause (i), such organization shall be treated as having
disposed of such property on the date of such cessation.
(c) 80-percent distributee
For purposes of this section, the term "80-percent distributee"
means only the corporation which meets the 80-percent stock
ownership requirements specified in section 332(b). For purposes of
this section, the determination of whether any corporation is an
80-percent distributee shall be made without regard to any
consolidated return regulation.
(d) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of the
amendments made by subtitle D of title VI of the Tax Reform Act of
1986, including -
(1) regulations to ensure that such purposes may not be
circumvented through the use of any provision of law or
regulations (including the consolidated return regulations and
part III of this subchapter) or through the use of a regulated
investment company, real estate investment trust, or tax-exempt
entity, and
(2) regulations providing for appropriate coordination of the
provisions of this section with the provisions of this title
relating to taxation of foreign corporations and their
shareholders.
-SOURCE-
(Added Pub. L. 99-514, title VI, Sec. 631(a), Oct. 22, 1986, 100
Stat. 2271; amended Pub. L. 100-203, title X, Sec. 10223(a), Dec.
22, 1987, 101 Stat. 1330-411; Pub. L. 100-647, title I, Sec.
1006(e)(4), (5)(A), Nov. 10, 1988, 102 Stat. 3400.)
-REFTEXT-
REFERENCES IN TEXT
The Tax Reform Act of 1986, referred to in subsec. (d), is Pub.
L. 99-514, Oct. 22, 1986, 100 Stat. 2085, as amended. Subtitle D
(Secs. 631-634) of title VI of the Tax Reform Act of 1986 enacted
sections 336 and 337 of this title, amended sections 26, 311, 312,
332, 334, 338, 341, 346, 367, 453, 453B, 467, 852, 897, 1056, 1248,
1255, 1276, 1363, 1366, 1374, and 1375 of this title, and repealed
former sections 333, 336, and 337 of this title. For complete
classification of this Act to the Code, see Tables.
-MISC1-
PRIOR PROVISIONS
A prior section 337, acts Aug. 16, 1954, ch. 736, 68A Stat. 106;
Sept. 2, 1958, Pub. L. 85-866, title I, Sec. 19, 72 Stat. 1615;
Oct. 4, 1976, Pub. L. 94-455, title XIX, Secs. 1901(a)(46),
1906(b)(13)(A), title XXI, Sec. 2118(a), 90 Stat. 1772, 1834, 1912;
Nov. 6, 1978, Pub. L. 95-600, title VII, Sec. 701(i)(1), 92 Stat.
2904; Nov. 10, 1978, Pub. L. 95-628, Sec. 4(a), 92 Stat. 3628; Apr.
2, 1980, Pub. L. 96-223, title IV, Sec. 403(b)(2)(A), 94 Stat. 304;
Oct. 19, 1980, Pub. L. 96-471, Sec. 2(c)(2), 94 Stat. 2254; Dec.
24, 1980, Pub. L. 96-589, Sec. 5(c), 94 Stat. 3405; Sept. 3, 1982,
Pub. L. 97-248, title II, Sec. 224(c)(5), (6), 96 Stat. 489; Oct.
22, 1986, Pub. L. 99-514, title XVIII, Sec. 1804(e)(7)(A), 100
Stat. 2803, related to gain or loss on sales or exchanges in
connection with certain liquidations, prior to repeal by Pub. L.
99-514, Sec. 631(a).
AMENDMENTS
1988 - Subsec. (b)(2)(B)(i). Pub. L. 100-647, Sec. 1006(e)(4)(A),
(B), substituted "described in section 511(a)(2)" for "described in
section 511(a)(2) or 511(b)(2)" and "in an activity the income from
which is subject to tax under section 511(a)" for "in an unrelated
trade or business (as defined in section 513)".
Subsec. (b)(2)(B)(ii). Pub. L. 100-647, Sec. 1006(e)(4)(C),
substituted "an activity referred to in clause (i)" for "an
unrelated trade or business of such organization".
Subsec. (d). Pub. L. 100-647, Sec. 1006(e)(5)(A), in introductory
provisions, substituted "amendments made by subtitle D of title VI
of the Tax Reform Act of 1986" for "amendments made to this subpart
by the Tax Reform Act of 1986", and in par. (1), substituted "this
subchapter) or through the use of a regulated investment company,
real estate investment trust, or tax-exempt entity" for "this
subchapter)".
1987 - Subsec. (c). Pub. L. 100-203 inserted at end "For purposes
of this section, the determination of whether any corporation is an
80-percent distributee shall be made without regard to any
consolidated return regulation."
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1006(e)(5)(B) of Pub. L. 100-647 provided that: "The
amendment made by subparagraph (A)(ii) [amending this section]
shall not apply to any reorganization if before June 10, 1987 -
"(i) the board of directors of a party to the reorganization
adopted a resolution to solicit shareholder approval for the
transaction, or
"(ii) the shareholders or the board of directors of a party to
the reorganization approved the transaction."
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Amendment by Pub. L. 100-203 applicable to distributions or
transfers after Dec. 15, 1987, with exceptions for certain
distributee corporations and distributions covered by prior
transition rule, see section 10223(d) of Pub. L. 100-203, set out
as a note under section 304 of this title.
EFFECTIVE DATE
Section applicable to any distribution in complete liquidation,
and any sale or exchange, made by a corporation after July 31,
1986, unless such corporation is completely liquidated before Jan.
1, 1987, any transaction described in section 338 of this title for
which the acquisition date occurs after Dec. 31, 1986, and any
distribution, not in complete liquidation, made after Dec. 31,
1986, with exceptions and special and transitional rules, see
section 633 of Pub. L. 99-514, set out as a note under section 336
of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 334, 336, 367, 453B, 857,
897, 1248 of this title.
-End-
-CITE-
26 USC Sec. 338 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART II - CORPORATE LIQUIDATIONS
Subpart B - Effects on Corporation
-HEAD-
Sec. 338. Certain stock purchases treated as asset acquisitions
-STATUTE-
(a) General rule
For purposes of this subtitle, if a purchasing corporation makes
an election under this section (or is treated under subsection (e)
as having made such an election), then, in the case of any
qualified stock purchase, the target corporation -
(1) shall be treated as having sold all of its assets at the
close of the acquisition date at fair market value in a single
transaction, and
(2) shall be treated as a new corporation which purchased all
of the assets referred to in paragraph (1) as of the beginning of
the day after the acquisition date.
(b) Basis of assets after deemed purchase
(1) In general
For purposes of subsection (a), the assets of the target
corporation shall be treated as purchased for an amount equal to
the sum of -
(A) the grossed-up basis of the purchasing corporation's
recently purchased stock, and
(B) the basis of the purchasing corporation's nonrecently
purchased stock.
(2) Adjustment for liabilities and other relevant items
The amount described in paragraph (1) shall be adjusted under
regulations prescribed by the Secretary for liabilities of the
target corporation and other relevant items.
(3) Election to step-up the basis of certain target stock
(A) In general
Under regulations prescribed by the Secretary, the basis of
the purchasing corporation's nonrecently purchased stock shall
be the basis amount determined under subparagraph (B) of this
paragraph if the purchasing corporation makes an election to
recognize gain as if such stock were sold on the acquisition
date for an amount equal to the basis amount determined under
subparagraph (B).
(B) Determination of basis amount
For purposes of subparagraph (A), the basis amount determined
under this subparagraph shall be an amount equal to the
grossed-up basis determined under subparagraph (A) of paragraph
(1) multiplied by a fraction -
(i) the numerator of which is the percentage of stock (by
value) in the target corporation attributable to the
purchasing corporation's nonrecently purchased stock, and
(ii) the denominator of which is 100 percent minus the
percentage referred to in clause (i).
(4) Grossed-up basis
For purposes of paragraph (1), the grossed-up basis shall be an
amount equal to the basis of the corporation's recently purchased
stock, multiplied by a fraction -
(A) the numerator of which is 100 percent, minus the
percentage of stock (by value) in the target corporation
attributable to the purchasing corporation's nonrecently
purchased stock, and
(B) the denominator of which is the percentage of stock (by
value) in the target corporation attributable to the purchasing
corporation's recently purchased stock.
(5) Allocation among assets
The amount determined under paragraphs (1) and (2) shall be
allocated among the assets of the target corporation under
regulations prescribed by the Secretary.
(6) Definitions of recently purchased stock and nonrecently
purchased stock
For purposes of this subsection -
(A) Recently purchased stock
The term "recently purchased stock" means any stock in the
target corporation which is held by the purchasing corporation
on the acquisition date and which was purchased by such
corporation during the 12-month acquisition period.
(B) Nonrecently purchased stock
The term "nonrecently purchased stock" means any stock in the
target corporation which is held by the purchasing corporation
on the acquisition date and which is not recently purchased
stock.
[(c) Repealed. Pub. L. 99-514, title VI, Sec. 631(b)(2), Oct. 22,
1986, 100 Stat. 2272]
(d) Purchasing corporation; target corporation; qualified stock
purchase
For purposes of this section -
(1) Purchasing corporation
The term "purchasing corporation" means any corporation which
makes a qualified stock purchase of stock of another corporation.
(2) Target corporation
The term "target corporation" means any corporation the stock
of which is acquired by another corporation in a qualified stock
purchase.
(3) Qualified stock purchase
The term "qualified stock purchase" means any transaction or
series of transactions in which stock (meeting the requirements
of section 1504(a)(2)) of 1 corporation is acquired by another
corporation by purchase during the 12-month acquisition period.
(e) Deemed election where purchasing corporation acquires asset of
target corporation
(1) In general
A purchasing corporation shall be treated as having made an
election under this section with respect to any target
corporation if, at any time during the consistency period, it
acquires any asset of the target corporation (or a target
affiliate).
(2) Exceptions
Paragraph (1) shall not apply with respect to any acquisition
by the purchasing corporation if -
(A) such acquisition is pursuant to a sale by the target
corporation (or the target affiliate) in the ordinary course of
its trade or business,
(B) the basis of the property acquired is determined wholly
by reference to the adjusted basis of such property in the
hands of the person from whom acquired,
(C) such acquisition was before September 1, 1982, or
(D) such acquisition is described in regulations prescribed
by the Secretary and meets such conditions as such regulations
may provide.
(3) Anti-avoidance rule
Whenever necessary to carry out the purpose of this subsection
and subsection (f), the Secretary may treat stock acquisitions
which are pursuant to a plan and which meet the requirements of
section 1504(a)(2) as qualified stock purchases.
(f) Consistency required for all stock acquisitions from same
affiliated group
If a purchasing corporation makes qualified stock purchases with
respect to the target corporation and 1 or more target affiliates
during any consistency period, then (except as otherwise provided
in subsection (e)) -
(1) any election under this section with respect to the first
such purchase shall apply to each other such purchase, and
(2) no election may be made under this section with respect to
the second or subsequent such purchase if such an election was
not made with respect to the first such purchase.
(g) Election
(1) When made
Except as otherwise provided in regulations, an election under
this section shall be made not later than the 15th day of the 9th
month beginning after the month in which the acquisition date
occurs.
(2) Manner
An election by the purchasing corporation under this section
shall be made in such manner as the Secretary shall by
regulations prescribe.
(3) Election irrevocable
An election by a purchasing corporation under this section,
once made, shall be irrevocable.
(h) Definitions and special rules
For purposes of this section -
(1) 12-month acquisition period
The term "12-month acquisition period" means the 12-month
period beginning with the date of the first acquisition by
purchase of stock included in a qualified stock purchase (or, if
any of such stock was acquired in an acquisition which is a
purchase by reason of subparagraph (C) of paragraph (3), the date
on which the acquiring corporation is first considered under
section 318(a) (other than paragraph (4) thereof) as owning stock
owned by the corporation from which such acquisition was made).
(2) Acquisition date
The term "acquisition date" means, with respect to any
corporation, the first day on which there is a qualified stock
purchase with respect to the stock of such corporation.
(3) Purchase
(A) In general
The term "purchase" means any acquisition of stock, but only
if -
(i) the basis of the stock in the hands of the purchasing
corporation is not determined (I) in whole or in part by
reference to the adjusted basis of such stock in the hands of
the person from whom acquired, or (II) under section 1014(a)
(relating to property acquired from a decedent),
(ii) the stock is not acquired in an exchange to which
section 351, 354, 355, or 356 applies and is not acquired in
any other transaction described in regulations in which the
transferor does not recognize the entire amount of the gain
or loss realized on the transaction, and
(iii) the stock is not acquired from a person the ownership
of whose stock would, under section 318(a) (other than
paragaraph (!1) (4) thereof), be attributed to the person
acquiring such stock.
(B) Deemed purchase under subsection (a)
The term "purchase" includes any deemed purchase under
subsection (a)(2). The acquisition date for a corporation which
is deemed purchased under subsection (a)(2) shall be determined
under regulations prescribed by the Secretary.
(C) Certain stock acquisitions from related corporations
(i) In general
Clause (iii) of subparagraph (A) shall not apply to an
acquisition of stock from a related corporation if at least
50 percent in value of the stock of such related corporation
was acquired by purchase (within the meaning of subparagraphs
(A) and (B)).
(ii) Certain distributions
Clause (i) of subparagraph (A) shall not apply to an
acquisition of stock described in clause (i) of this
subparagraph if the corporation acquiring such stock -
(I) made a qualified stock purchase of stock of the
related corporation, and
(II) made an election under this section (or is treated
under subsection (e) as having made such an election) with
respect to such qualified stock purchase.
(iii) Related corporation defined
For purposes of this subparagraph, a corporation is a
related corporation if stock owned by such corporation is
treated (under section 318(a) other than paragraph (4)
thereof) as owned by the corporation acquiring the stock.
(4) Consistency period
(A) In general
Except as provided in subparagraph (B), the term "consistency
period" means the period consisting of -
(i) the 1-year period before the beginning of the 12-month
acquisition period for the target corporation,
(ii) such acquisition period (up to and including the
acquisition date), and
(iii) the 1-year period beginning on the day after the
acquisition date.
(B) Extension where there is plan
The period referred to in subparagraph (A) shall also include
any period during which the Secretary determines that there was
in effect a plan to make a qualified stock purchase plus 1 or
more other qualified stock purchases (or asset acquisitions
described in subsection (e)) with respect to the target
corporation or any target affiliate.
(5) Affiliated group
The term "affiliated group" has the meaning given to such term
by section 1504(a) (determined without regard to the exceptions
contained in section 1504(b)).
(6) Target affiliate
(A) In general
A corporation shall be treated as a target affiliate of the
target corporation if each of such corporations was, at any
time during so much of the consistency period as ends on the
acquisition date of the target corporation, a member of an
affiliated group which had the same common parent.
(B) Certain foreign corporations, etc.
Except as otherwise provided in regulations (and subject to
such conditions as may be provided in regulations) -
(i) the term "target affiliate" does not include a foreign
corporation, a DISC, or a corporation to which an election
under section 936 applies, and
(ii) stock held by a target affiliate in a foreign
corporation or a domestic corporation which is a DISC or
described in section 1248(e) shall be excluded from the
operation of this section.
[(7) Repealed. Pub. L. 100-647, title I, Sec. 1006(e)(20), Nov.
10, 1988, 102 Stat. 3403]
(8) Acquisitions by affiliated group treated as made by 1
corporation
Except as provided in regulations prescribed by the Secretary,
stock and asset acquisitions made by members of the same
affiliated group shall be treated as made by 1 corporation.
(9) Target not treated as member of affiliated group
Except as otherwise provided in paragraph (10) or in
regulations prescribed under this paragraph, the target
corporation shall not be treated as a member of an affiliated
group with respect to the sale described in subsection (a)(1).
(10) Elective recognition of gain or loss by target corporation,
together with nonrecognition of gain or loss on stock sold by
selling consolidated group
(A) In general
Under regulations prescribed by the Secretary, an election
may be made under which if -
(i) the target corporation was, before the transaction, a
member of the selling consolidated group, and
(ii) the target corporation recognizes gain or loss with
respect to the transaction as if it sold all of its assets in
a single transaction,
then the target corporation shall be treated as a member of the
selling consolidated group with respect to such sale, and (to
the extent provided in regulations) no gain or loss will be
recognized on stock sold or exchanged in the transaction by
members of the selling consolidated group.
(B) Selling consolidated group
For purposes of subparagraph (A), the term "selling
consolidated group" means any group of corporations which (for
the taxable period which includes the transaction) -
(i) includes the target corporation, and
(ii) files a consolidated return.
To the extent provided in regulations, such term also includes
any affiliated group of corporations which includes the target
corporation (whether or not such group files a consolidated
return).
(C) Information required to be furnished to the Secretary
Under regulations, where an election is made under
subparagraph (A), the purchasing corporation and the common
parent of the selling consolidated group shall, at such times
and in such manner as may be provided in regulations, furnish
to the Secretary the following information:
(i) The amount allocated under subsection (b)(5) to
goodwill or going concern value.
(ii) Any modification of the amount described in clause
(i).
(iii) Any other information as the Secretary deems
necessary to carry out the provisions of this paragraph.
(11) Elective formula for determining fair market value
For purposes of subsection (a)(1), fair market value may be
determined on the basis of a formula provided in regulations
prescribed by the Secretary which takes into account liabilities
and other relevant items.
[(12) Repealed. Pub. L. 99-514, title VI, Sec. 631(e)(5), Oct.
22, 1986, 100 Stat. 2273]
(13) Tax on deemed sale not taken into account for estimated tax
purposes
For purposes of section 6655, tax attributable to the sale
described in subsection (a)(1) shall not be taken into account.
[(14) Repealed. Pub. L. 108-27, title III, Sec. 302(e)(4)(B)(i),
May 28, 2003, 117 Stat. 763]
(15) Combined deemed sale return
Under regulations prescribed by the Secretary, a combined
deemed sale return may be filed by all target corporations
acquired by a purchasing corporation on the same acquisition date
if such target corporations were members of the same selling
consolidated group (as defined in subparagraph (B) of paragraph
(10)).
(16) Coordination with foreign tax credit provisions
Except as provided in regulations, this section shall not apply
for purposes of determining the source or character of any item
for purposes of subpart A of part III of subchapter N of this
chapter (relating to foreign tax credit). The preceding sentence
shall not apply to any gain to the extent such gain is includible
in gross income as a dividend under section 1248 (determined
without regard to any deemed sale under this section by a foreign
corporation).
(i) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this section,
including -
(1) regulations to ensure that the purpose of this section to
require consistency of treatment of stock and asset sales and
purchases may not be circumvented through the use of any
provision of law or regulations (including the consolidated
return regulations) and
(2) regulations providing for the coordination of the
provisions of this section with the provision of this title
relating to foreign corporations and their shareholders.
-SOURCE-
(Added Pub. L. 97-248, title II, Sec. 224(a), Sept. 3, 1982, 96
Stat. 485; amended Pub. L. 97-448, title III, Sec. 306(a)(8)(A)(i),
Jan. 12, 1983, 96 Stat. 2402; Pub. L. 98-369, div. A, title VII,
Sec. 712(k)(1)-(5)(D), (6), (7), July 18, 1984, 98 Stat. 948-952;
Pub. L. 99-514, title VI, Sec. 631(b), (e)(5), title XII, Sec.
1275(c)(6), title XVIII, Secs. 1804(e)(8)(A), 1899A(7), Oct. 22,
1986, 100 Stat. 2272, 2273, 2599, 2804, 2958; Pub. L. 100-647,
title I, Secs. 1006(e)(20), 1012(bb)(5)(A), 1018(d)(9), Nov. 10,
1988, 102 Stat. 3403, 3535, 3581; Pub. L. 101-508, title XI, Sec.
11323(c)(1), Nov. 5, 1990, 104 Stat. 1388-465; Pub. L. 108-27,
title III, Sec. 302(e)(4)(B)(i), May 28, 2003, 117 Stat. 763.)
-STATAMEND-
AMENDMENT OF SECTION
For termination of amendment by section 303 of Pub. L. 108-27,
see Effective and Termination Dates of 2003 Amendment note below.
-MISC1-
PRIOR PROVISIONS
A prior section 338, act Aug. 16, 1954, ch. 736, 68A Stat. 107,
made reference to a special rule relating to the effect on earnings
and profits of certain distributions in partial liquidation in
section 312(e), prior to repeal by Pub. L. 97-248, Sec. 222(e)(4).
AMENDMENTS
2003 - Subsec. (h)(14). Pub. L. 108-27, Secs. 302(e)(4)(B)(i),
303, temporarily struck out heading and text of par. (14). Text
read as follows: "For purposes of determining whether section 341
applies to a disposition within 1 year after the acquisition date
of stock by a shareholder (other than the acquiring corporation)
who held stock in the target corporation on the acquisition date,
section 341 shall be applied without regard to this section." See
Effective and Termination Dates of 2003 Amendment note below.
1990 - Subsec. (h)(10)(C). Pub. L. 101-508 added subpar. (C).
1988 - Subsec. (e)(3). Pub. L. 100-647, Sec. 1018(d)(9),
substituted "which meet the requirements of section 1504(a)(2)" for
"which meet the 80 percent requirements of subparagraphs (A) and
(B) of subsection (d)(3)".
Subsec. (h)(7). Pub. L. 100-647, Sec. 1006(e)(20), struck out
par. (7) which read as follows: "Additional percentage must be
attributable to purchase, etc. - For purposes of subsection (c)(1),
any increase in the maximum percentage of stock taken into account
over the percentage of stock (by value) of the target corporation
held by the purchasing corporation on the acquisition date shall be
taken into account only to the extent such increase is attributable
to -
"(A) purchase, or
"(B) a redemption of stock of the target corporation -
"(i) to which section 302(a) applies, or
"(ii) in the case of a shareholder who is not a corporation,
to which section 301 applies."
Subsec. (h)(16). Pub. L. 100-647, Sec. 1012(bb)(5)(A), added par.
(16).
1986 - Subsec. (a)(1). Pub. L. 99-514, Sec. 631(b)(1), struck out
"to which section 337 applies" after "in a single transaction".
Subsec. (c). Pub. L. 99-514, Sec. 631(b)(2), struck out subsec.
(c) relating to special rules for coordination with section 337
where purchasing corporation holds less than 100 percent of stock,
and in case of certain redemptions where an election is made under
this section.
Subsec. (d)(3). Pub. L. 99-514, Sec. 1804(e)(8)(A), amended par.
(3) generally. Prior to amendment, par. (3) read as follows: "The
term 'qualified stock purchase' means any transaction or series of
transactions in which stock of 1 corporation possessing -
"(A) at least 80 percent of total combined voting power of all
classes of stock entitled to vote, and
"(B) at least 80 percent of the total number of shares of all
other classes of stock (except nonvoting stock which is limited
and preferred as to dividends),
is acquired by another corporation by purchase during the 12-month
acquisition period."
Subsec. (h)(3)(C)(i). Pub. L. 99-514, Sec. 1899A(7), substituted
"subparagraphs" for "subparagraph".
Subsec. (h)(6)(B)(i). Pub. L. 99-514, Sec. 1275(c)(6), struck out
"a corporation described in section 934(b)," after "DISC,".
Subsec. (h)(10)(B). Pub. L. 99-514, Sec. 631(b)(3), inserted
provision that to the extent provided in regulations, term "selling
consolidated group" also includes any affiliated group of
corporations which includes the target corporation (whether or not
such group files a consolidated return).
Subsec. (h)(12). Pub. L. 99-514, Sec. 631(e)(5), struck out par.
(12) relating to applicability of section 337 where target had
adopted plan for complete liquidation.
1984 - Subsec. (a)(1). Pub. L. 98-369, Sec. 712(k)(1)(A),
inserted "at fair market value" after "acquisition date".
Subsec. (b). Pub. L. 98-369, Sec. 712(k)(1)(B), substituted
"Basis of assets after deemed purchase" for "Price at which deemed
sale made" in heading.
Subsec. (b)(1). Pub. L. 98-369, Sec. 712(k)(1)(B), amended par.
(1) generally, substituting "as purchased for an amount equal to
the sum of" for "as sold (and purchased) at an amount equal to" in
introductory text, "purchasing corporation's recently purchased
stock, and" for "purchasing corporation's stock in the target
corporation on the acquisition date" in subpar. (A), and "the basis
of the purchasing corporation's nonrecently purchased stock" in
subpar. (B) in lieu of provision relating to adjustment for
liabilities and other relevant items, now covered in par. (2).
Subsec. (b)(2). Pub. L. 98-369, Sec. 712(k)(1)(B), amended par.
(2) generally, incorporating former par. (1)(B) provision,
inserting heading "Adjustment for liabilities and other relevant
items" and substituting "adjusted under regulations" for "properly
adjusted under regulations". Former par. (2) redesignated (4).
Subsec. (b)(3). Pub. L. 98-369, Sec. 712(k)(1)(B), added par.
(3). Former par. (3) redesignated (5).
Subsec. (b)(4). Pub. L. 98-369, Sec. 712(k)(1)(B), redesignated
former par. (2) as (4), substituted in introductory text
"corporation's recently purchased stock," for "purchasing
corporation's stock in the target corporation on the acquisition
date", inserted in subpar. (A) "minus the percentage of stock (by
value) in the target corporation attributable to the purchasing
corporation's nonrecently purchased stock", and substituted in
subpar. (B) "in the target corporation attributable to the
purchasing corporation's recently purchased stock" for "of the
target corporation held by the purchasing corporation on the
acquisition date".
Subsec. (b)(5). Pub. L. 98-369, Sec. 712(k)(1)(B), redesignated
former par. (3) as (5) and inserted reference to par. (2).
Subsec. (b)(6). Pub. L. 98-369, Sec. 712(k)(1)(B), added par.
(6).
Subsec. (c)(1). Pub. L. 98-369, Sec. 712(k)(2), inserted in last
sentence "and section 333 does not apply to such liquidation".
Subsec. (e)(2). Pub. L. 98-369, Sec. 712(k)(3), substituted
"wholly" for "(in whole or in part)" in subpar. (B), struck out
subpar. (D) providing for nonapplication of par. (1) to any
acquisition by the purchasing corporation if, to the extent
provided in regulations, the property acquired is located outside
the United States, redesignated subpar. (E) as (D), and, in subpar.
(D) as redesignated, inserted "and meets such conditions as such
regulations may provide".
Subsec. (g)(1). Pub. L. 98-369, Sec. 712(k)(4), substituted "the
15th day of the 9th month beginning after the month in which the
acquisition date occurs" for "75 days after the acquisition date".
Subsec. (h)(1). Pub. L. 98-369, Sec. 712(k)(5)(C), included
within 12-month acquisition period the period beginning with the
date on which the acquiring corporation is first considered as
owning stock owned by corporation from which acquisition was made.
Subsec. (h)(3)(A)(ii). Pub. L. 98-369, Sec. 712(k)(5)(D),
included references to sections 354, 355, and 356 and in defining
"purchase" provided that the stock not be acquired in any other
transaction described in regulations in which the transferor does
not recognize the entire amount of the gain or loss realized on the
transaction.
Subsec. (h)(3)(B). Pub. L. 98-369, Sec. 712(k)(5)(A), substituted
in heading "under subsection (a)" for "of stock of subsidiaries"
and in text "The term 'purchase' includes any deemed purchase under
subsection (a)(2). The acquisition date for a corporation which is
deemed purchased under subsection (a)(2) shall be determined under
regulations prescribed by the Secretary" for "If stock in a
corporation is acquired by purchase (within the meaning of
subparagraph (A)) and, as a result of such acquisition, the
corporation making such purchase is treated (by reason of section
318(a)) as owning stock in a 3rd corporation, the corporation
making such purchase shall be treated as having purchased such
stock in such 3rd corporation. The corporation making such purchase
shall be treated as purchasing stock in the 3rd corporation by
reason of the preceding sentence on the first day on which the
purchasing corporation is considered under section 318(a) as owning
such stock".
Subsec. (h)(3)(C). Pub. L. 98-369, Sec. 712(k)(5)(B), added
subpar. (C).
Subsec. (h)(7). Pub. L. 98-369, Sec. 712(k)(6)(A), added par. (7)
and struck out former par. (7) which had provided that acquisitions
by purchasing corporation include acquisitions by corporations
affiliated with purchasing corporation. See subsec. (h)(8).
Subsec. (h)(8). Pub. L. 98-369, Sec. 712(k)(6)(A), added par. (8)
incorporating former par. (7) provision stating that "Except as
otherwise provided in regulations, an acquisition of stock or
assets by any member of an affiliated group which includes a
purchasing corporation shall be treated as made by the purchasing
corporation." Former par. (8) redesignated (9).
Subsec. (h)(9). Pub. L. 98-369, Sec. 712(k)(6)(A), (B),
redesignated former par. (8) as (9) and substituted therein
"paragraph (10)" for "paragraph (9)". Former par. (9) redesignated
(10).
Subsec. (h)(10). Pub. L. 98-369, Sec. 712(k)(6)(A), redesignated
former par. (9) as (10).
Subsec. (h)(11) to (15). Pub. L. 98-369, Sec. 712(k)(6)(C), added
pars. (11) to (15).
Subsec. (i). Pub. L. 98-369, Sec. 712(k)(7), provided in
introductory text that the regulations be appropriate to carry out
the purposes of this section; designated existing provisions as
par. (1) and substituted therein "treatment of stock and asset
sales and purchases" for "treatment of stock and asset purchases
with respect to a target corporation and its target affiliates
(whether by treating all of them as stock purchases or as asset
purchases)" before "may not be circumvented", and added par. (2).
1983 - Subsec. (h)(8), (9). Pub. L. 97-448 added pars. (8) and
(9).
EFFECTIVE AND TERMINATION DATES OF 2003 AMENDMENT
Amendment by Pub. L. 108-27 applicable, except as otherwise
provided, to taxable years beginning after Dec. 31, 2002, see
section 302(f) of Pub. L. 108-27, set out as a note under section 1
of this title.
Amendment by Pub. L. 108-27 inapplicable to taxable years
beginning after Dec. 31, 2008, and the Internal Revenue Code of
1986 to be applied and administered to such years as if such
amendment had never been enacted, see section 303 of Pub. L.
108-27, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Section 11323(d) of Pub. L. 101-508 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and sections
1060 and 6724 of this title] shall apply to acquisitions after
October 9, 1990.
"(2) Binding contract exception. - The amendments made by this
section shall not apply to any acquisition pursuant to a written
binding contract in effect on October 9, 1990, and at all times
thereafter before such acquisition."
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1012(bb)(5)(B) of Pub. L. 100-647 provided that: "The
amendment made by subparagraph (A) [amending this section] shall
apply to qualified stock purchases (as defined in section 338(d)(3)
of the 1986 Code) after March 31, 1988, except that, in the case of
an election under section 338(h)(10) of the 1986 Code, such
amendment shall apply to qualified stock purchases (as so defined)
after June 10, 1987."
Amendment by sections 1006(e)(20) and 1018(d)(9) of Pub. L.
100-647 effective, except as otherwise provided, as if included in
the provision of the Tax Reform Act of 1986, Pub. L. 99-514, to
which such amendment relates, see section 1019(a) of Pub. L.
100-647, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 631(b), (e)(5) of Pub. L. 99-514 applicable
to any distribution in complete liquidation, and any sale or
exchange, made by a corporation after July 31, 1986, unless such
corporation is completely liquidated before Jan. 1, 1987, any
transaction described in section 338 of this title for which the
acquisition date occurs after Dec. 31, 1986, and any distribution,
not in complete liquidation, made after Dec. 31, 1986, with
exceptions and special and transitional rules, see section 633 of
Pub. L. 99-514, set out as an Effective Date note under section 336
of this title.
Amendment by section 1275(c)(6) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, with certain
exceptions and qualifications, see section 1277 of Pub. L. 99-514,
set out as a note under section 931 of this title.
Section 1804(e)(8)(B) of Pub. L. 99-514 provided that: "The
amendment made by subparagraph (A) [amending this section] shall
apply in cases where the 12-month acquisition period (as defined in
section 338(h)(1) of the Internal Revenue Code of 1954 [now 1986]
begins after December 31, 1985."
EFFECTIVE DATE OF 1984 AMENDMENT
Section 712(k)(9) of Pub. L. 98-369, as amended by Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(A) In general. - The amendments made by this subsection
[amending this section and sections 269 and 318 of this title]
shall not apply to any qualified stock purchase (as defined in
section 338(d)(3) of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954]) where the acquisition date (as defined in section
338(h)(2) of such Code) is before September 1, 1982.
"(B) Extension of time for making election. - In the case of any
qualified stock purchase described in subparagraph (A), the time
for making an election under section 338 of such Code shall not
expire before the close of the 60th day after the date of the
enactment of this Act [July 18, 1984]."
Amendment by section 712(k) of Pub. L. 98-369 effective as if
included in the provision of the Tax Equity and Fiscal
Responsibility Act of 1982, Pub. L. 97-248, to which such amendment
relates, see section 715 of Pub. L. 98-369, set out as a note under
section 31 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective as if included in the
provisions of the Tax Equity and Fiscal Responsibility Act of 1982,
Pub. L. 97-248, to which such amendment relates, see section 311(d)
of Pub. L. 97-448, set out as a note under section 31 of this
title.
EFFECTIVE DATE
Section 224(d) of Pub. L. 97-248, as amended by Pub. L. 97-448,
title III, Sec. 306(a)(8)(B), Jan. 12, 1983, 96 Stat. 2403; Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - The amendments made by this section [enacting
this section and amending sections 168, 318, 334, 336, 337, 381,
and 617 of this title] shall apply to any target corporation
(within the meaning of section 338 of the Internal Revenue Code of
1986 [formerly I.R.C. 1954] as added by this section) with respect
to which the acquisition date (within the meaning of such section)
occurs after August 31, 1982.
"(2) Certain acquisitions before september 1, 1982. - If -
"(A) an acquisition date (within the meaning of section 338 of
such Code without regard to paragraph (5) of this subsection)
occurred after August 31, 1980, and before September 1, 1982,
"(B) the target corporation (within the meaning of section 338
of such Code) is not liquidated before September 1, 1982, and
"(C) the purchasing corporation (within the meaning of section
338 of such Code makes, not later than November 15, 1982, an
election under section 338 of such Code,
then the amendments made by this section shall apply to the
acquisition of such target corporation.
"(3) Certain acquisitions of financial institutions. - In any
case in which -
"(A) there is, on July 22, 1982, a binding contract to acquire
control (within the meaning of section 368(c) of such Code of any
financial institution,
"(B) the approval of one or more regulatory authorities is
required in order to complete such acquisition, and
"(C) within 90 days after the date of the final approval of the
last such regulatory authority granting final approval, a plan of
complete liquidation of such financial institution is adopted,
then the purchasing corporation may elect not to have the
amendments made by this section apply to the acquisition pursuant
to such contract.
"(4) Extension of time for making elections; revocation of
elections. -
"(A) Extension. - The time for making an election under section
338 of such Code shall not expire before the close of February
28, 1983.
"(B) Revocation. - Any election made under section 338 of such
Code may be revoked by the purchasing corporation if revoked
before March 1, 1983.
"(5) Rules for acquisitions described in paragraph (2). -
"(A) In general. - For purposes of applying section 338 of such
Code with respect to any acquisition described in paragraph (2) -
"(i) the date selected under subparagraph (B) of this
paragraph shall be treated as the acquisition date,
"(ii) a rule similar to the last sentence of section
334(b)(2) of such Code (as in effect on August 31, 1982) shall
apply, and
"(iii) subsections (e), (f), and (i) of such section 338, and
paragraphs (4), (6), (8), and (9) of subsection (h) of such
section 338, shall not apply.
"(B) Selection of acquisition date by purchasing corporation. -
The purchasing corporation may select any date for purposes of
subparagraph (A)(i) if such date -
"(i) is after the later of June 30, 1982, or the acquisition
date (within the meaning of section 338 of such Code without
regard to this paragraph), and
"(ii) is on or before the date on which the election
described in paragraph (2)(C) is made."
TREATMENT OF CERTAIN CORPORATION ORGANIZED ON FEBRUARY 22, 1983
Section 1804(e)(9) of Pub. L. 99-514 provided that: "In the case
of a Rhode Island corporation which was organized on February 22,
1983, and which on February 25, 1983 -
"(A) purchased the stock of another corporation,
"(B) filed an election under section 338(g) of the Internal
Revenue Code of 1986 with respect to such purchase, and
"(C) merged into the acquired corporation,
such purchase of stock shall be considered as made by the acquiring
corporation, such election shall be valid, and the acquiring
corporation shall be considered a purchasing corporation for
purposes of section 338 of such Code without regard to the duration
of the existence of the acquiring corporation."
SPECIAL RULES FOR DEEMED PURCHASES UNDER PRIOR LAW
Section 712(k)(10) of Pub. L. 98-369, as amended by Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "If,
before October 20, 1983, a corporation was treated as making a
qualified stock purchase (as defined in section 338(d)(3) of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954]), but would
not be so treated under the amendments made by paragraphs (5) and
(6) [amending subsec. (h) and section 318(b)(4) of this title] of
this subsection, the amendments made by such paragraphs shall not
apply to such purchase unless such corporation elects (at such time
and in such manner as the Secretary of the Treasury or his delegate
may by regulations prescribe) to have the amendments made by such
paragraphs apply.
EXCEPTION FOR STOCK PURCHASES IN CONTEMPLATION OF TARGET
CORPORATION AS MEMBER OF AFFILIATED GROUP
Section 306(a)(8)(A)(ii) of Pub. L. 97-448, as amended by Pub. L.
98-369, div. A, title VII, Sec. 722(a)(3), July 18, 1984, 98 Stat.
973; Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095,
provided that: "If -
"(I) any portion of a qualified stock purchase is pursuant to a
binding contract entered into on or after September 1, 1982, and
on or before the date of the enactment of this Act [Jan. 12,
1983], and
"(II) the purchasing corporation establishes by clear and
convincing evidence that such contract was negotiated on the
contemplation that, with respect to the deemed sale under section
338 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954],
the target corporation would be treated as a member of the
affiliated group which includes the selling corporation,
then the amendment made by clause (i) [amending subsec. (h)] shall
not apply to such qualified stock purchase."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 172, 269, 318, 382, 1060,
1362, 6724 of this title; title 45 section 1347.
-FOOTNOTE-
(!1) So in original.
-End-
-CITE-
26 USC [Subpart C - Repealed] 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART II - CORPORATE LIQUIDATIONS
[Subpart C - Repealed]
-HEAD-
[SUBPART C - REPEALED]
-End-
-CITE-
26 USC Sec. 341 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART II - CORPORATE LIQUIDATIONS
[Subpart C - Repealed]
-HEAD-
[Sec. 341. Repealed. Pub. L. 108-27, title III, Sec. 302(e)(4)(A),
May 28, 2003, 117 Stat. 763]
-MISC1-
Section, act Aug. 16, 1954, ch. 736, 68A Stat. 107; Pub. L.
85-866, title I, Sec. 20(a), Sept. 2, 1958, 72 Stat. 1615; Pub. L.
87-834, Sec. 13(f)(4), Oct. 16, 1962, 76 Stat. 1035; Pub. L.
88-272, title II, Sec. 231(b)(4), Feb. 26, 1964, 78 Stat. 105; Pub.
L. 88-484, Sec. 1(a), Aug. 22, 1964, 78 Stat. 596; Pub. L. 89-570,
Sec. 1(b)(4), Sept. 12, 1966, 80 Stat. 762; Pub. L. 91-172, title
II, Sec. 211(b)(4), title V, Sec. 514(b)(1), Dec. 30, 1969, 83
Stat. 570, 643; Pub. L. 94-455, title II, Sec. 205(c)(2), title
XIV, Sec. 1402(b)(1)(B), (2), title XIX, Secs. 1901(b)(3)(A), (I),
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1535, 1731, 1732, 1792,
1793, 1834; Pub. L. 97-34, title V, Sec. 505(c)(2), Aug. 13, 1981,
95 Stat. 332; Pub. L. 97-248, title II, Sec. 222(e)(5), Sept. 3,
1982, 96 Stat. 480; Pub. L. 98-369, div. A, title I, Secs.
43(c)(1), 65(a)-(c), 135(a), title IV, Sec. 492(b)(2), title X,
Sec. 1001(b)(2), (e), July 18, 1984, 98 Stat. 558, 584, 669, 854,
1011, 1012; Pub. L. 99-514, title VI, Sec. 631(e)(6), title XVIII,
Secs. 1804(i)(1), 1899A(8), Oct. 22, 1986, 100 Stat. 2273, 2807,
2958; Pub. L. 100-647, title I, Sec. 1006(e)(18), Nov. 10, 1988,
102 Stat. 3403; Pub. L. 104-188, title I, Sec. 1702(h)(7), Aug. 20,
1996, 110 Stat. 1874; Pub. L. 106-170, title V, Sec. 532(c)(2)(D),
Dec. 17, 1999, 113 Stat. 1930; Pub. L. 107-147, title IV, Sec.
417(24)(B)(i), Mar. 9, 2002, 116 Stat. 57, related to collapsible
corporations.
-STATAMEND-
TERMINATION OF REPEAL
For termination of repeal by section 303 of Pub. L. 108-27, see
Effective and Termination Dates of Repeal note below.
-MISC1-
EFFECTIVE AND TERMINATION DATES OF REPEAL
Repeal applicable, except as otherwise provided, to taxable years
beginning after Dec. 31, 2002, see section 302(f) of Pub. L.
108-27, set out as an Effective and Termination Dates of 2003
Amendment note under section 1 of this title.
Repeal terminated for taxable years beginning after Dec. 31,
2008, and the Internal Revenue Code of 1986 to be applied and
administered to such years as if section had never been repealed,
see section 303 of Pub. L. 108-27, set out as an Effective and
Termination Dates of 2003 Amendment note under section 1 of this
title.
-End-
-CITE-
26 USC Sec. 342 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART II - CORPORATE LIQUIDATIONS
[Subpart C - Repealed]
-HEAD-
[Sec. 342. Repealed. Pub. L. 94-455, title XIX, Sec. 1901(a)(47),
Oct. 4, 1976, 90 Stat. 1772]
-MISC1-
Section, act Aug. 16, 1954, ch. 736, 68A Stat. 110, related to
liquidation of certain foreign personal holding companies.
EFFECTIVE DATE OF REPEAL
Repeal effective for taxable years beginning after Dec. 31, 1976,
see section 1901(d) of Pub. L. 94-455, set out as an Effective Date
of 1976 Amendment note under section 2 of this title.
-End-
-CITE-
26 USC Subpart D - Definition and Special Rule 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART II - CORPORATE LIQUIDATIONS
Subpart D - Definition and Special Rule
-HEAD-
SUBPART D - DEFINITION AND SPECIAL RULE
-MISC1-
Sec.
346. Definition and special rule.
AMENDMENTS
1982 - Pub. L. 97-248, title II, Sec. 222(e)(8)(A), Sept. 3,
1982, 96 Stat. 481, inserted "and Special Rule" in subpart heading,
and substituted "Definition and special rule" for "Partial
liquidation defined" in item 346.
-End-
-CITE-
26 USC Sec. 346 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART II - CORPORATE LIQUIDATIONS
Subpart D - Definition and Special Rule
-HEAD-
Sec. 346. Definition and special rule
-STATUTE-
(a) Complete liquidation
For purposes of this subchapter, a distribution shall be treated
as in complete liquidation of a corporation if the distribution is
one of a series of distributions in redemption of all of the stock
of the corporation pursuant to a plan.
(b) Transactions which might reach same result as partial
liquidations
The Secretary shall prescribe such regulations as may be
necessary to ensure that the purposes of subsections (a) and (b) of
section 222 of the Tax Equity and Fiscal Responsibility Act of 1982
(which repeal the special tax treatment for partial liquidations)
may not be circumvented through the use of section 355, 351, or any
other provision of law or regulations (including the consolidated
return regulations).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 110; Pub. L. 97-248, title II,
Sec. 222(d), Sept. 3, 1982, 96 Stat. 479; Pub. L. 99-514, title VI,
Sec. 631(e)(7), Oct. 22, 1986, 100 Stat. 2273.)
-REFTEXT-
REFERENCES IN TEXT
Subsections (a) and (b) of section 222 of the Tax Equity and
Fiscal Responsibility Act of 1982, referred to in subsec. (b), are
subsecs. (a) and (b) of Pub. L. 97-248, title II, Sec. 222, Sept.
3, 1982, 96 Stat. 478, which amended sections 331(a) and 336(a) of
this title.
-MISC1-
AMENDMENTS
1986 - Subsec. (b). Pub. L. 99-514 struck out "337," after
"351,".
1982 - Subsec. (a). Pub. L. 97-248 substituted provision that a
distribution shall be treated as in complete liquidation if the
distribution is one of a series in redemption of all the stock
pursuant to a plan for provision that a distribution was to be
treated as in partial liquidation if the distribution was one of a
series in redemption of all the stock pursuant to a plan, or the
distribution was not essentially equivalent to a dividend, was in
redemption of part of the stock pursuant to a plan, and occurred
within the taxable year or the next taxable year of the plan being
adopted, including but not limited to a distribution which met the
requirements of former subsec. (b) of this section, and that for
the purposes of sections 562(b) and 6043 of this title, a partial
liquidation included a redemption of stock to which section 302 of
this title applied.
Subsec. (b). Pub. L. 97-248 added subsec. (b) and struck out
former subsec. (b) which provided that a distribution was to be
treated as in partial liquidation of a corporation if the
distribution was attributable to the cessation of a business which
had been carried on for the previous 5-year period and had not been
acquired by the corporation in a transaction involving recognition
of gain or loss during that time, and if the distributing
corporation was actively involved in a trade or business
immediately after the distribution under the terms described above
for the business being liquidated, and that compliance with the
above requirements would be determined without regard to whether or
not the distribution was pro rata with respect to all the
shareholders of the corporation.
Subsec. (c). Pub. L. 97-248 struck out subsec. (c) which provided
that the fact that, with respect to a shareholder, a distribution
qualified under section 302(a) by reason of section 302(b) would
not be taken into account in determining whether the distribution,
with respect to such shareholder, was also a distribution in
partial liquidation of the corporation.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to any distribution in
complete liquidation, and any sale or exchange, made by a
corporation after July 31, 1986, unless such corporation is
completely liquidated before Jan. 1, 1987, any transaction
described in section 338 of this title for which the acquisition
date occurs after Dec. 31, 1986, and any distribution, not in
complete liquidation, made after Dec. 31, 1986, with exceptions and
special and transitional rules, see section 633 of Pub. L. 99-514,
set out as an Effective Date note under section 336 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-248 applicable to distributions after
Aug. 31, 1982, with exceptions for certain partial liquidations,
see section 222(f) of Pub. L. 97-248, set out as a note under
section 302 of this title.
-End-
-CITE-
26 USC PART III - CORPORATE ORGANIZATIONS AND
REORGANIZATIONS 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART III - CORPORATE ORGANIZATIONS AND REORGANIZATIONS
-HEAD-
PART III - CORPORATE ORGANIZATIONS AND REORGANIZATIONS
-MISC1-
Subpart
A. Corporate organizations.
B. Effects on shareholders and security holders.
C. Effects on corporations.(!1)
D. Special rule; definitions.
-SECREF-
PART REFERRED TO IN OTHER SECTIONS
This part is referred to in sections 197, 301, 337 of this title.
-FOOTNOTE-
(!1) So in original. Does not conform to subpart heading.
-End-
-CITE-
26 USC Subpart A - Corporate Organizations 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART III - CORPORATE ORGANIZATIONS AND REORGANIZATIONS
Subpart A - Corporate Organizations
-HEAD-
SUBPART A - CORPORATE ORGANIZATIONS
-MISC1-
Sec.
351. Transfer to corporation controlled by transferor.
-End-
-CITE-
26 USC Sec. 351 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART III - CORPORATE ORGANIZATIONS AND REORGANIZATIONS
Subpart A - Corporate Organizations
-HEAD-
Sec. 351. Transfer to corporation controlled by transferor
-STATUTE-
(a) General rule
No gain or loss shall be recognized if property is transferred to
a corporation by one or more persons solely in exchange for stock
in such corporation and immediately after the exchange such person
or persons are in control (as defined in section 368(c)) of the
corporation.
(b) Receipt of property
If subsection (a) would apply to an exchange but for the fact
that there is received, in addition to the stock permitted to be
received under subsection (a), other property or money, then -
(1) gain (if any) to such recipient shall be recognized, but
not in excess of -
(A) the amount of money received, plus
(B) the fair market value of such other property received;
and
(2) no loss to such recipient shall be recognized.
(c) Special rules where distribution to shareholders
(1) In general
In determining control for purposes of this section, the fact
that any corporate transferor distributes part or all of the
stock in the corporation which it receives in the exchange to its
shareholders shall not be taken into account.
(2) Special rule for section 355
If the requirements of section 355 (or so much of section 356
as relates to section 355) are met with respect to a distribution
described in paragraph (1), then, solely for purposes of
determining the tax treatment of the transfers of property to the
controlled corporation by the distributing corporation, the fact
that the shareholders of the distributing corporation dispose of
part or all of the distributed stock, or the fact that the
corporation whose stock was distributed issues additional stock,
shall not be taken into account in determining control for
purposes of this section.
(d) Services, certain indebtedness, and accrued interest not
treated as property
For purposes of this section, stock issued for -
(1) services,
(2) indebtedness of the transferee corporation which is not
evidenced by a security, or
(3) interest on indebtedness of the transferee corporation
which accrued on or after the beginning of the transferor's
holding period for the debt,
shall not be considered as issued in return for property.
(e) Exceptions
This section shall not apply to -
(1) Transfer of property to an investment company
A transfer of property to an investment company. For purposes
of the preceding sentence, the determination of whether a company
is an investment company shall be made -
(A) by taking into account all stock and securities held by
the company, and
(B) by treating as stock and securities -
(i) money,
(ii) stocks and other equity interests in a corporation,
evidences of indebtedness, options, forward or futures
contracts, notional principal contracts and derivatives,
(iii) any foreign currency,
(iv) any interest in a real estate investment trust, a
common trust fund, a regulated investment company, a
publicly-traded partnership (as defined in section 7704(b))
or any other equity interest (other than in a corporation)
which pursuant to its terms or any other arrangement is
readily convertible into, or exchangeable for, any asset
described in any preceding clause, this clause or clause (v)
or (viii),
(v) except to the extent provided in regulations prescribed
by the Secretary, any interest in a precious metal, unless
such metal is used or held in the active conduct of a trade
or business after the contribution,
(vi) except as otherwise provided in regulations prescribed
by the Secretary, interests in any entity if substantially
all of the assets of such entity consist (directly or
indirectly) of any assets described in any preceding clause
or clause (viii),
(vii) to the extent provided in regulations prescribed by
the Secretary, any interest in any entity not described in
clause (vi), but only to the extent of the value of such
interest that is attributable to assets listed in clauses (i)
through (v) or clause (viii), or
(viii) any other asset specified in regulations prescribed
by the Secretary.
The Secretary may prescribe regulations that, under appropriate
circumstances, treat any asset described in clauses (i) through
(v) as not so listed.
(2) Title 11 or similar case
A transfer of property of a debtor pursuant to a plan while the
debtor is under the jurisdiction of a court in a title 11 or
similar case (within the meaning of section 368(a)(3)(A)), to the
extent that the stock received in the exchange is used to satisfy
the indebtedness of such debtor.
(f) Treatment of controlled corporation
If -
(1) property is transferred to a corporation (hereinafter in
this subsection referred to as the "controlled corporation") in
an exchange with respect to which gain or loss is not recognized
(in whole or in part) to the transferor under this section, and
(2) such exchange is not in pursuance of a plan of
reorganization,
section 311 shall apply to any transfer in such exchange by the
controlled corporation in the same manner as if such transfer were
a distribution to which subpart A of part I applies.
(g) Nonqualified preferred stock not treated as stock
(1) In general
In the case of a person who transfers property to a corporation
and receives nonqualified preferred stock -
(A) subsection (a) shall not apply to such transferor, and
(B) if (and only if) the transferor receives stock other than
nonqualified preferred stock -
(i) subsection (b) shall apply to such transferor; and
(ii) such nonqualified preferred stock shall be treated as
other property for purposes of applying subsection (b).
(2) Nonqualified preferred stock
For purposes of paragraph (1) -
(A) In general
The term "nonqualified preferred stock" means preferred stock
if -
(i) the holder of such stock has the right to require the
issuer or a related person to redeem or purchase the stock,
(ii) the issuer or a related person is required to redeem
or purchase such stock,
(iii) the issuer or a related person has the right to
redeem or purchase the stock and, as of the issue date, it is
more likely than not that such right will be exercised, or
(iv) the dividend rate on such stock varies in whole or in
part (directly or indirectly) with reference to interest
rates, commodity prices, or other similar indices.
(B) Limitations
Clauses (i), (ii), and (iii) of subparagraph (A) shall apply
only if the right or obligation referred to therein may be
exercised within the 20-year period beginning on the issue date
of such stock and such right or obligation is not subject to a
contingency which, as of the issue date, makes remote the
likelihood of the redemption or purchase.
(C) Exceptions for certain rights or obligations
(i) In general
A right or obligation shall not be treated as described in
clause (i), (ii), or (iii) of subparagraph (A) if -
(I) it may be exercised only upon the death, disability,
or mental incompetency of the holder, or
(II) in the case of a right or obligation to redeem or
purchase stock transferred in connection with the
performance of services for the issuer or a related person
(and which represents reasonable compensation), it may be
exercised only upon the holder's separation from service
from the issuer or a related person.
(ii) Exception
Clause (i)(I) shall not apply if the stock relinquished in
the exchange, or the stock acquired in the exchange is in -
(I) a corporation if any class of stock in such
corporation or a related party is readily tradable on an
established securities market or otherwise, or
(II) any other corporation if such exchange is part of a
transaction or series of transactions in which such
corporation is to become a corporation described in
subclause (I).
(3) Definitions
For purposes of this subsection -
(A) Preferred stock
The term "preferred stock" means stock which is limited and
preferred as to dividends and does not participate in corporate
growth to any significant extent.
(B) Related person
A person shall be treated as related to another person if
they bear a relationship to such other person described in
section 267(b) or 707(b).
(4) Regulations
The Secretary may prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this
subsection and sections 354(a)(2)(C), 355(a)(3)(D), and 356(e).
The Secretary may also prescribe regulations, consistent with the
treatment under this subsection and such sections, for the
treatment of nonqualified preferred stock under other provisions
of this title.
(h) Cross references
(1) For special rule where another party to the exchange
assumes a liability, see section 357.
(2) For the basis of stock or property received in an
exchange to which this section applies, see sections 358 and
362.
(3) For special rule in the case of an exchange described in
this section but which results in a gift, see section 2501 and
following.
(4) For special rule in the case of an exchange described in
this section but which has the effect of the payment of
compensation by the corporation or by a transferor, see section
61(a)(1).
(5) For coordination of this section with section 304, see
section 304(b)(3).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 111; Pub. L. 89-809, title II,
Sec. 203(a), (b), Nov. 13, 1966, 80 Stat. 1577; Pub. L. 94-455,
title XIX, Sec. 1901(a)(48)(A), (B), Oct. 4, 1976, 90 Stat. 1772;
Pub. L. 96-589, Sec. 5(e), Dec. 24, 1980, 94 Stat. 3406; Pub. L.
97-248, title II, Sec. 226(a)(1)(B), Sept. 3, 1982, 96 Stat. 491;
Pub. L. 100-647, title I, Sec. 1018(d)(5)(G), Nov. 10, 1988, 102
Stat. 3580; Pub. L. 101-239, title VII, Sec. 7203(a), (b), Dec. 19,
1989, 103 Stat. 2333; Pub. L. 101-508, title XI, Sec. 11704(a)(3),
Nov. 5, 1990, 104 Stat. 1388-518; Pub. L. 105-34, title X, Secs.
1002(a), 1012(c)(1), 1014(a), Aug. 5, 1997, 111 Stat. 909, 916,
919; Pub. L. 105-206, title VI, Sec. 6010(c)(3)(A), (e)(1), July
22, 1998, 112 Stat. 813, 814; Pub. L. 105-277, div. J, title IV,
Sec. 4003(f)(1), Oct. 21, 1998, 112 Stat. 2681-910; Pub. L. 106-36,
title III, Sec. 3001(d)(1), June 25, 1999, 113 Stat. 183; Pub. L.
107-147, title IV, Sec. 417(9), Mar. 9, 2002, 116 Stat. 56.)
-MISC1-
AMENDMENTS
2002 - Subsec. (h)(1). Pub. L. 107-147 inserted comma after
"liability".
1999 - Subsec. (h)(1). Pub. L. 106-36 struck out ", or acquires
property subject to a liability," after "liability".
1998 - Subsec. (c). Pub. L. 105-206, Sec. 6010(c)(3)(A),
reenacted heading without change and amended text generally. Prior
to amendment, text read as follows: "In determining control for
purposes of this section -
"(1) the fact that any corporate transferor distributes part or
all of the stock in the corporation which it receives in the
exchange to its shareholders shall not be taken into account, and
"(2) if the requirements of section 355 are met with respect to
such distribution, the shareholders shall be treated as in
control of such corporation immediately after the exchange if the
shareholders own (immediately after the distribution) stock
possessing -
"(A) more than 50 percent of the total combined voting power
of all classes of stock of such corporation entitled to vote,
and
"(B) more than 50 percent of the total value of shares of all
classes of stock of such corporation."
Subsec. (c)(2). Pub. L. 105-277 inserted ", or the fact that the
corporation whose stock was distributed issues additional stock,"
after "dispose of part or all of the distributed stock".
Subsec. (g)(1)(A) to (C). Pub. L. 105-206, Sec. 6010(e)(1),
inserted "and" at end of subpar. (A), added subpar. (B), and struck
out former subpars. (B) and (C) which read as follows:
"(B) subsection (b) shall apply to such transferor, and
"(C) such nonqualified preferred stock shall be treated as other
property for purposes of applying subsection (b)."
1997 - Subsec. (c). Pub. L. 105-34, Sec. 1012(c)(1), amended
heading and text of subsec. (c) generally. Prior to amendment, text
read as follows: "In determining control, for purposes of this
section, the fact that any corporate transferor distributes part or
all of the stock which it receives in the exchange to its
shareholders shall not be taken into account."
Subsec. (e)(1). Pub. L. 105-34, Sec. 1002(a), inserted last two
sentences.
Subsecs. (g), (h). Pub. L. 105-34, Sec. 1014(a), added subsec.
(g) and redesignated former subsec. (g) as (h).
1990 - Subsec. (e)(2). Pub. L. 101-508 substituted "is used" for
"are used".
1989 - Subsec. (a). Pub. L. 101-239, Sec. 7203(a), struck out "or
securities" after "stock".
Subsecs. (b), (d), (e)(2). Pub. L. 101-239, Sec. 7203(b)(1),
struck out "or securities" after "stock".
Subsec. (g)(2). Pub. L. 101-239, Sec. 7203(b)(2), substituted
"stock or property" for "stock, securities, or property".
1988 - Subsecs. (f), (g). Pub. L. 100-647 added subsec. (f) and
redesignated former subsec. (f) as (g).
1982 - Subsec. (f)(5). Pub. L. 97-248 added par. (5).
1980 - Subsec. (a). Pub. L. 96-589, Sec. 5(e)(2), struck out
provision that stock or securities issued for services shall not be
considered as issued in return for property for purposes of this
section.
Subsec. (d). Pub. L. 96-589, Sec. 5(e)(1), added subsec. (d).
Former subsec. (d) redesignated (e)(1).
Subsec. (e). Pub. L. 96-589, Sec. 5(e)(2), redesignated former
subsec. (d) as par. (1) and added par. (2). Former subsec. (e)
redesignated (f).
Subsec. (f). Pub. L. 96-589, Sec. 5(e)(1), redesignated former
subsec. (e) as (f).
1976 - Subsec. (a). Pub. L. 94-455, Sec. 1901(a)(48)(A), struck
out "(including, in the case of transfers made on or before June
30, 1967, an investment company)" after "property is transferred to
a corporation".
Subsec. (d). Pub. L. 94-455, Sec. 1901(a)(48)(B), among other
changes, substituted "Exception" for "Application of June 30, 1967,
date" in heading and in text provision that this section does not
apply to a transfer of property to an investment company for
provisions relating to treatment of a transfer of property to an
investment company as made on or before June 30, 1967.
1966 - Subsec. (a). Pub. L. 89-809, Sec. 203(a), inserted
"(including, in the case of transfers made on or before June 30,
1967, an investment company)" after "if property is transferred to
a corporation".
Subsecs. (d), (e). Pub. L. 89-809, Sec. 203(b), added subsec. (d)
and redesignated former subsec. (d) as (e).
EFFECTIVE DATE OF 1999 AMENDMENT
Pub. L. 106-36, title III, Sec. 3001(e), June 25, 1999, 113 Stat.
184, provided that: "The amendments made by this section [amending
this section and sections 357, 358, 362, 368, 584, and 1031 of this
title] shall apply to transfers after October 18, 1998."
EFFECTIVE DATE OF 1998 AMENDMENTS
Amendment by Pub. L. 105-277 effective as if included in the
provision of the Taxpayer Relief Act of 1997, Pub. L. 105-34, to
which such amendment relates, see section 4003(l) of Pub. L.
105-277, set out as a note under section 86 of this title.
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1002(b) of Pub. L. 105-34 provided that:
"(1) In general. - The amendment made by subsection (a) [amending
this section] shall apply to transfers after June 8, 1997, in
taxable years ending after such date.
"(2) Binding contracts. - The amendment made by subsection (a)
shall not apply to any transfer pursuant to a written binding
contract in effect on June 8, 1997, and at all times thereafter
before such transfer if such contract provides for the transfer of
a fixed amount of property."
Section 1012(d) of Pub. L. 105-34, as amended by Pub. L. 105-206,
title VI, Sec. 6010(c)(1), July 22, 1998, 112 Stat. 813, provided
that:
"(1) Section 355 rules. - The amendments made by subsections (a)
and (b) [amending sections 355 and 358 of this title] shall apply
to distributions after April 16, 1997; except that the amendment
made by subsection (a) [amending section 355 of this title] shall
apply to such distributions only if pursuant to a plan (or series
of related transactions) which involves an acquisition described in
section 355(e)(2)(A)(ii) of the Internal Revenue Code of 1986
occurring after such date.
"(2) Divisive transactions. - The amendments made by subsection
(c) [amending this section and section 368 of this title] shall
apply to transfers after the date of the enactment of this Act
[Aug. 5, 1997].
"(3) Transition rule. - The amendments made by this section
[amending this section and sections 355, 358, and 368 of this
title] shall not apply to any distribution pursuant to a plan (or
series of related transactions) which involves an acquisition
described in section 355(e)(2)(A)(ii) of the Internal Revenue Code
of 1986 (or, in the case of the amendments made by subsection (c),
any transfer) occurring after April 16, 1997, if such acquisition
or transfer is -
"(A) made pursuant to an agreement which was binding on such
date and at all times thereafter,
"(B) described in a ruling request submitted to the Internal
Revenue Service on or before such date, or
"(C) described on or before such date in a public announcement
or in a filing with the Securities and Exchange Commission
required solely by reason of the acquisition or transfer.
This paragraph shall not apply to any agreement, ruling request, or
public announcement or filing unless it identifies the acquirer of
the distributing corporation or any controlled corporation, or the
transferee, whichever is applicable."
Section 1014(f) of Pub. L. 105-34 provided that:
"(1) In general. - The amendments made by this section [amending
this section and sections 354 to 356 and 1036 of this title] shall
apply to transactions after June 8, 1997.
"(2) Transition rule. - The amendments made by this section shall
not apply to any transaction after June 8, 1997, if such
transaction is -
"(A) made pursuant to a written agreement which was binding on
such date and at all times thereafter,
"(B) described in a ruling request submitted to the Internal
Revenue Service on or before such date, or
"(C) described on or before such date in a public announcement
or in a filing with the Securities and Exchange Commission
required solely by reason of the transaction."
EFFECTIVE DATE OF 1989 AMENDMENT
Section 7203(c) of Pub. L. 101-239 provided that:
"(1) In general. - Except as provided in this subsection, the
amendments made by this section [amending this section] shall apply
to transfers after October 2, 1989, in taxable years ending after
such date.
"(2) Binding contract. - The amendments made by this section
shall not apply to any transfer pursuant to a written binding
contract in effect on October 2, 1989, and at all times thereafter
before such transfer.
"(3) Corporate transfers. - In the case of property transferred
(directly or indirectly through a partnership or otherwise) by a C
corporation, paragraphs (1) and (2) shall be applied by
substituting 'July 11, 1989' for 'October 2, 1989'. The preceding
sentence shall not apply where the corporation meets the
requirements of section 1504(a)(2) of the Internal Revenue Code of
1986 with respect to the transferee corporation (and where the
transfer is not part of a plan pursuant to which the transferor
subsequently fails to meet such requirements)."
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1018(d)(5)(G) of Pub. L. 100-647 provided that the
amendment made by that section is effective with respect to
transfers on or after June 21, 1988.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-248 applicable to transfers occurring
after Aug. 31, 1982, except for certain transfers pursuant to an
application to form a BHC filed with the Federal Reserve Board
before Aug. 16, 1982, see section 226(c) of Pub. L. 97-248, set out
as a note under section 304 of this title.
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-589 applicable to transactions which
occur after Dec. 31, 1980, other than transactions which occur in
proceedings in bankruptcy cases or similar judicial proceedings or
in proceedings under Title 11, Bankruptcy, commencing on or before
Dec. 31, 1980, except as otherwise provided, see section 7 of Pub.
L. 96-589, set out as a note under section 108 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1901(a)(48)(C) of Pub. L. 94-455 provided that: "The
amendments made by this paragraph [amending this section] shall
take effect with respect to transfers of property occurring after
the date of the enactment of this Act [Oct. 4, 1976]."
EFFECTIVE DATE OF 1966 AMENDMENT
Section 203(c) of Pub. L. 89-809 provided that: "The amendments
made by subsections (a) and (b) [amending this section] shall apply
with respect to transfers of property to investment companies
whether made before, on, or after the date of the enactment of this
Act [Nov. 13, 1966]."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 45D, 168, 197, 304, 306,
336, 338, 346, 354, 355, 356, 357, 358, 362, 367, 368, 382, 683,
721, 724, 735, 995, 1036, 1202, 1245, 1250, 1276, 6038B of this
title.
-End-
-CITE-
26 USC Subpart B - Effects on Shareholders and Security
Holders 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART III - CORPORATE ORGANIZATIONS AND REORGANIZATIONS
Subpart B - Effects on Shareholders and Security Holders
-HEAD-
SUBPART B - EFFECTS ON SHAREHOLDERS AND SECURITY HOLDERS
-MISC1-
Sec.
354. Exchanges of stock and securities in certain
reorganizations.
355. Distribution of stock and securities of a controlled
corporation.
356. Receipt of additional consideration.
357. Assumption of liability.
358. Basis to distributees.
-End-
-CITE-
26 USC Sec. 354 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART III - CORPORATE ORGANIZATIONS AND REORGANIZATIONS
Subpart B - Effects on Shareholders and Security Holders
-HEAD-
Sec. 354. Exchanges of stock and securities in certain
reorganizations
-STATUTE-
(a) General rule
(1) In general
No gain or loss shall be recognized if stock or securities in a
corporation a party to a reorganization are, in pursuance of the
plan of reorganization, exchanged solely for stock or securities
in such corporation or in another corporation a party to the
reorganization.
(2) Limitation
(A) Excess principal amount
Paragraph (1) shall not apply if -
(i) the principal amount of any such securities received
exceeds the principal amount of any such securities
surrendered, or
(ii) any such securities are received and no such
securities are surrendered.
(B) Property attributable to accrued interest
Neither paragraph (1) nor so much of section 356 as relates
to paragraph (1) shall apply to the extent that any stock
(including nonqualified preferred stock, as defined in section
351(g)(2)), securities, or other property received is
attributable to interest which has accrued on securities on or
after the beginning of the holder's holding period.
(C) Nonqualified preferred stock
(i) In general
Nonqualified preferred stock (as defined in section
351(g)(2)) received in exchange for stock other than
nonqualified preferred stock (as so defined) shall not be
treated as stock or securities.
(ii) Recapitalizations of family-owned corporations
(I) In general
Clause (i) shall not apply in the case of a
recapitalization under section 368(a)(1)(E) of a
family-owned corporation.
(II) Family-owned corporation
For purposes of this clause, except as provided in
regulations, the term "family-owned corporation" means any
corporation which is described in clause (i) of section
447(d)(2)(C) throughout the 8-year period beginning on the
date which is 5 years before the date of the
recapitalization. For purposes of the preceding sentence,
stock shall not be treated as owned by a family member
during any period described in section 355(d)(6)(B).
(III) Extension of statute of limitations
The statutory period for the assessment of any deficiency
attributable to a corporation failing to be a family-owned
corporation shall not expire before the expiration of 3
years after the date the Secretary is notified by the
corporation (in such manner as the Secretary may prescribe)
of such failure, and such deficiency may be assessed before
the expiration of such 3-year period notwithstanding the
provisions of any other law or rule of law which would
otherwise prevent such assessment.
(3) Cross references
(A) For treatment of the exchange if any property is received
which is not permitted to be received under this subsection
(including nonqualified preferred stock and an excess principal
amount of securities received over securities surrendered, but
not including property to which paragraph (2)(B) applies), see
section 356.
(B) For treatment of accrued interest in the case of an
exchange described in paragraph (2)(B), see section 61.
(b) Exception
(1) In general
Subsection (a) shall not apply to an exchange in pursuance of a
plan of reorganization within the meaning of subparagraph (D) or
(G) of section 368(a)(1), unless -
(A) the corporation to which the assets are transferred
acquires substantially all of the assets of the transferor of
such assets; and
(B) the stock, securities, and other properties received by
such transferor, as well as the other properties of such
transferor, are distributed in pursuance of the plan of
reorganization.
(2) Cross reference
For special rules for certain exchanges in pursuance of plans
of reorganization within the meaning of subparagraph (D) or (G)
of section 368(a)(1), see section 355.
(c) Certain railroad reorganizations
Notwithstanding any other provision of this subchapter,
subsection (a)(1) (and so much of section 356 as relates to this
section) shall apply with respect to a plan of reorganization
(whether or not a reorganization within the meaning of section
368(a)) for a railroad confirmed under section 1173 of title 11 of
the United States Code, as being in the public interest.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 112; Pub. L. 94-253, Sec. 1(c),
Mar. 31, 1976, 90 Stat. 296; Pub. L. 95-473, Sec. 2(a)(2)(F), Oct.
17, 1978, 92 Stat. 1465; Pub. L. 96-589, Secs. 4(e)(1), (h)(1),
6(i)(2), Dec. 24, 1980, 94 Stat. 3403, 3404, 3410; Pub. L. 101-508,
title XI, Sec. 11801(c)(8)(D), Nov. 5, 1990, 104 Stat. 1388-524;
Pub. L. 104-88, title III, Sec. 304(c), Dec. 29, 1995, 109 Stat.
944; Pub. L. 105-34, title X, Sec. 1014(b), (e)(1), (2), Aug. 5,
1997, 111 Stat. 920, 921; Pub. L. 105-206, title VI, Sec.
6010(e)(2), July 22, 1998, 112 Stat. 814.)
-MISC1-
AMENDMENTS
1998 - Subsec. (a)(2)(C)(ii)(III). Pub. L. 105-206 added subcl.
(III).
1997 - Subsec. (a)(2)(B). Pub. L. 105-34, Sec. 1014(e)(1),
inserted "(including nonqualified preferred stock, as defined in
section 351(g)(2))" after "stock".
Subsec. (a)(2)(C). Pub. L. 105-34, Sec. 1014(b), added subpar.
(C).
Subsec. (a)(3)(A). Pub. L. 105-34, Sec. 1014(e)(2), inserted
"nonqualified preferred stock and" after "subsection (including".
1995 - Subsec. (c). Pub. L. 104-88 struck out "or approved by the
Interstate Commerce Commission under subchapter IV of chapter 113
of title 49," after "Code,".
1990 - Subsec. (d). Pub. L. 101-508 struck out subsec. (d)
"Exchanges under the final system plan for ConRail" which read as
follows: "No gain or loss shall be recognized if stock or
securities in a corporation are, in pursuance of an exchange to
which paragraph (1) or (2) of section 374(c) applies, exchanged
solely for stock of the Consolidated Rail Corporation, securities
of such Corporation, certificates of value of the United States
Railway Association, or any combination thereof."
1980 - Subsec. (a)(2). Pub. L. 96-589, Sec. 4(e)(1), redesignated
existing pars. (A) and (B) as par. (A)(i), (ii), and added par.
(B).
Subsec. (a)(3). Pub. L. 96-589, Sec. 4(e)(1), designated existing
provisions as subpar. (A), inserted provisions excluding property
to which paragraph (2)(B) applies, and added subpar. (B).
Subsec. (b). Pub. L. 96-589, Sec. 4(h)(1), substituted
"subparagraph (D) or (G) of section 368(a)(1)" for "section
368(a)(1)(D)", wherever appearing.
Subsec. (c). Pub. L. 96-589, Sec. 6(i)(2), substituted "confirmed
under section 1173 of title 11 of the United States Code, or
approved by the Interstate Commerce Commission" for "approved by
the Interstate Commerce Commission under section 77 of the
Bankruptcy Act, or".
1978 - Subsec. (c). Pub. L. 95-473 substituted "subchapter IV of
chapter 113 of title 49" for "section 20b of the Interstate
Commerce Act".
1976 - Subsec. (d). Pub. L. 94-253 added subsec. (d).
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable, with certain exceptions,
to transactions after June 8, 1997, see section 1014(f) of Pub. L.
105-34, set out as a note under section 351 of this title.
EFFECTIVE DATE OF 1995 AMENDMENT
Amendment by Pub. L. 104-88 effective Jan. 1, 1996, see section 2
of Pub. L. 104-88, set out as an Effective Date note under section
701 of Title 49, Transportation.
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by section 4(e)(1) of Pub. L. 96-589 applicable to
bankruptcy cases or similar judicial proceedings commencing after
Dec. 31, 1980, and to exchanges which occur after Dec. 31, 1980,
and which do not occur in a bankruptcy case or similar judicial
proceeding or in a proceeding under Title 11, Bankruptcy, commenced
on or before Dec. 31, 1980, with an exception permitting the debtor
to make the amendment applicable to such cases, proceedings or
exchanges commencing after Sept. 30, 1979, see section 7(c), (f) of
Pub. L. 96-589, set out as a note under section 108 of this title.
Amendment by section 4(h)(1) of Pub. L. 96-589 applicable to
bankruptcy cases or similar judicial proceedings commencing after
Dec. 31, 1980, with an exception permitting the debtor to make the
amendment applicable to such cases or proceedings commencing after
Sept. 30, 1979, see section 7(c)(1), (f) of Pub. L. 96-589, set out
as a note under section 108 of this title.
Amendment by section 6(i)(2) of Pub. L. 96-589 effective Oct. 1,
1979, but not applicable to any proceeding under Title 11 commenced
before Oct. 1, 1979, see section 7(e) of Pub. L. 96-589, set out as
a note under section 108 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 2 of Pub. L. 94-253 provided that: "The amendments made
by section 1 [amending this section and sections 356, 358, and 374
of this title] shall apply to taxable years ending after March 31,
1976."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 29 of this title.
-TRANS-
ABOLITION OF UNITED STATES RAILWAY ASSOCIATION AND TRANSFER OF
FUNCTIONS
United States Railway Association abolished effective Apr. 1,
1987, all powers, duties, rights, and obligations of Association
relating to Consolidated Rail Corporation under Regional Rail
Reorganization Act of 1973 (45 U.S.C. 701 et seq.) transferred to
Secretary of Transportation on Jan. 1, 1987, and any securities of
Corporation held by Association transferred to Secretary of
Transportation on Oct. 21, 1986, see section 1341 of Title 45,
Railroads.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 83, 108, 332, 338, 351,
355, 356, 358, 367, 368, 381, 382, 424, 943, 953, 1276, 6038B of
this title.
-End-
-CITE-
26 USC Sec. 355 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART III - CORPORATE ORGANIZATIONS AND REORGANIZATIONS
Subpart B - Effects on Shareholders and Security Holders
-HEAD-
Sec. 355. Distribution of stock and securities of a controlled
corporation
-STATUTE-
(a) Effect on distributees
(1) General rule
If -
(A) a corporation (referred to in this section as the
"distributing corporation") -
(i) distributes to a shareholder, with respect to its
stock, or
(ii) distributes to a security holder, in exchange for its
securities,
solely stock or securities of a corporation (referred to in
this section as "controlled corporation") which it controls
immediately before the distribution,
(B) the transaction was not used principally as a device for
the distribution of the earnings and profits of the
distributing corporation or the controlled corporation or both
(but the mere fact that subsequent to the distribution stock or
securities in one or more of such corporations are sold or
exchanged by all or some of the distributees (other than
pursuant to an arrangement negotiated or agreed upon prior to
such distribution) shall not be construed to mean that the
transaction was used principally as such a device),
(C) the requirements of subsection (b) (relating to active
businesses) are satisfied, and
(D) as part of the distribution, the distributing corporation
distributes -
(i) all of the stock and securities in the controlled
corporation held by it immediately before the distribution,
or
(ii) an amount of stock in the controlled corporation
constituting control within the meaning of section 368(c),
and it is established to the satisfaction of the Secretary
that the retention by the distributing corporation of stock
(or stock and securities) in the controlled corporation was
not in pursuance of a plan having as one of its principal
purposes the avoidance of Federal income tax,
then no gain or loss shall be recognized to (and no amount shall
be includible in the income of) such shareholder or security
holder on the receipt of such stock or securities.
(2) Non pro rata distributions, etc.
Paragraph (1) shall be applied without regard to the following:
(A) whether or not the distribution is pro rata with respect
to all of the shareholders of the distributing corporation,
(B) whether or not the shareholder surrenders stock in the
distributing corporation, and
(C) whether or not the distribution is in pursuance of a plan
of reorganization (within the meaning of section 368(a)(1)(D)).
(3) Limitations
(A) Excess principal amount
Paragraph (1) shall not apply if -
(i) the principal amount of the securities in the
controlled corporation which are received exceeds the
principal amount of the securities which are surrendered in
connection with such distribution, or
(ii) securities in the controlled corporation are received
and no securities are surrendered in connection with such
distribution.
(B) Stock acquired in taxable transactions within 5 years
treated as boot
For purposes of this section (other than paragraph (1)(D) of
this subsection) and so much of section 356 as relates to this
section, stock of a controlled corporation acquired by the
distributing corporation by reason of any transaction -
(i) which occurs within 5 years of the distribution of such
stock, and
(ii) in which gain or loss was recognized in whole or in
part,
shall not be treated as stock of such controlled corporation,
but as other property.
(C) Property attributable to accrued interest
Neither paragraph (1) nor so much of section 356 as relates
to paragraph (1) shall apply to the extent that any stock
(including nonqualified preferred stock, as defined in section
351(g)(2)), securities, or other property received is
attributable to interest which has accrued on securities on or
after the beginning of the holder's holding period.
(D) Nonqualified preferred stock
Nonqualified preferred stock (as defined in section
351(g)(2)) received in a distribution with respect to stock
other than nonqualified preferred stock (as so defined) shall
not be treated as stock or securities.
(4) Cross references
(A) For treatment of the exchange if any property is received
which is not permitted to be received under this subsection
(including nonqualified preferred stock and an excess principal
amount of securities received over securities surrendered, but
not including property to which paragraph (3)(C) applies), see
section 356.
(B) For treatment of accrued interest in the case of an
exchange described in paragraph (3)(C), see section 61.
(b) Requirements as to active business
(1) In general
Subsection (a) shall apply only if either -
(A) the distributing corporation, and the controlled
corporation (or, if stock of more than one controlled
corporation is distributed, each of such corporations), is
engaged immediately after the distribution in the active
conduct of a trade or business, or
(B) immediately before the distribution, the distributing
corporation had no assets other than stock or securities in the
controlled corporations and each of the controlled corporations
is engaged immediately after the distribution in the active
conduct of a trade or business.
(2) Definition
For purposes of paragraph (1), a corporation shall be treated
as engaged in the active conduct of a trade or business if and
only if -
(A) it is engaged in the active conduct of a trade or
business, or substantially all of its assets consist of stock
and securities of a corporation controlled by it (immediately
after the distribution) which is so engaged,
(B) such trade or business has been actively conducted
throughout the 5-year period ending on the date of the
distribution,
(C) such trade or business was not acquired within the period
described in subparagraph (B) in a transaction in which gain or
loss was recognized in whole or in part, and
(D) control of a corporation which (at the time of
acquisition of control) was conducting such trade or business -
(i) was not acquired by any distributee corporation
directly (or through 1 or more corporations, whether through
the distributing corporation or otherwise) within the period
described in subparagraph (B) and was not acquired by the
distributing corporation directly (or through 1 or more
corporations) within such period, or
(ii) was so acquired by any such corporation within such
period, but, in each case in which such control was so
acquired, it was so acquired, only by reason of transactions
in which gain or loss was not recognized in whole or in part,
or only by reason of such transactions combined with
acquisitions before the beginning of such period.
For purposes of subparagraph (D), all distributee corporations
which are members of the same affiliated group (as defined in
section 1504(a) without regard to section 1504(b)) shall be
treated as 1 distributee corporation.
(c) Taxability of corporation on distribution
(1) In general
Except as provided in paragraph (2), no gain or loss shall be
recognized to a corporation on any distribution to which this
section (or so much of section 356 as relates to this section)
applies and which is not in pursuance of a plan of
reorganization.
(2) Distribution of appreciated property
(A) In general
If -
(i) in a distribution referred to in paragraph (1), the
corporation distributes property other than qualified
property, and
(ii) the fair market value of such property exceeds its
adjusted basis (in the hands of the distributing
corporation),
then gain shall be recognized to the distributing corporation
as if such property were sold to the distributee at its fair
market value.
(B) Qualified property
For purposes of subparagraph (A), the term "qualified
property" means any stock or securities in the controlled
corporation.
(C) Treatment of liabilities
If any property distributed in the distribution referred to
in paragraph (1) is subject to a liability or the shareholder
assumes a liability of the distributing corporation in
connection with the distribution, then, for purposes of
subparagraph (A), the fair market value of such property shall
be treated as not less than the amount of such liability.
(3) Coordination with sections 311 and 336(a)
Sections 311 and 336(a) shall not apply to any distribution
referred to in paragraph (1).
(d) Recognition of gain on certain distributions of stock or
securities in controlled corporation
(1) In general
In the case of a disqualified distribution, any stock or
securities in the controlled corporation shall not be treated as
qualified property for purposes of subsection (c)(2) of this
section or section 361(c)(2).
(2) Disqualified distribution
For purposes of this subsection, the term "disqualified
distribution" means any distribution to which this section (or so
much of section 356 as relates to this section) applies if,
immediately after the distribution -
(A) any person holds disqualified stock in the distributing
corporation which constitutes a 50-percent or greater interest
in such corporation, or
(B) any person holds disqualified stock in the controlled
corporation (or, if stock of more than 1 controlled corporation
is distributed, in any controlled corporation) which
constitutes a 50-percent or greater interest in such
corporation.
(3) Disqualified stock
For purposes of this subsection, the term "disqualified stock"
means -
(A) any stock in the distributing corporation acquired by
purchase after October 9, 1990, and during the 5-year period
ending on the date of the distribution, and
(B) any stock in any controlled corporation -
(i) acquired by purchase after October 9, 1990, and during
the 5-year period ending on the date of the distribution, or
(ii) received in the distribution to the extent
attributable to distributions on -
(I) stock described in subparagraph (A), or
(II) any securities in the distributing corporation
acquired by purchase after October 9, 1990, and during the
5-year period ending on the date of the distribution.
(4) 50-percent or greater interest
For purposes of this subsection, the term "50-percent or
greater interest" means stock possessing at least 50 percent of
the total combined voting power of all classes of stock entitled
to vote or at least 50 percent of the total value of shares of
all classes of stock.
(5) Purchase
For purposes of this subsection -
(A) In general
Except as otherwise provided in this paragraph, the term
"purchase" means any acquisition but only if -
(i) the basis of the property acquired in the hands of the
acquirer is not determined (I) in whole or in part by
reference to the adjusted basis of such property in the hands
of the person from whom acquired, or (II) under section
1014(a), and
(ii) the property is not acquired in an exchange to which
section 351, 354, 355, or 356 applies.
(B) Certain section 351 exchanges treated as purchases
The term "purchase" includes any acquisition of property in
an exchange to which section 351 applies to the extent such
property is acquired in exchange for -
(i) any cash or cash item,
(ii) any marketable stock or security, or
(iii) any debt of the transferor.
(C) Carryover basis transactions
If -
(i) any person acquires property from another person who
acquired such property by purchase (as determined under this
paragraph with regard to this subparagraph), and
(ii) the adjusted basis of such property in the hands of
such acquirer is determined in whole or in part by reference
to the adjusted basis of such property in the hands of such
other person,
such acquirer shall be treated as having acquired such property
by purchase on the date it was so acquired by such other
person.
(6) Special rule where substantial diminution of risk
(A) In general
If this paragraph applies to any stock or securities for any
period, the running of any 5-year period set forth in
subparagraph (A) or (B) of paragraph (3) (whichever applies)
shall be suspended during such period.
(B) Property to which suspension applies
This paragraph applies to any stock or securities for any
period during which the holder's risk of loss with respect to
such stock or securities, or with respect to any portion of the
activities of the corporation, is (directly or indirectly)
substantially diminished by -
(i) an option,
(ii) a short sale,
(iii) any special class of stock, or
(iv) any other device or transaction.
(7) Aggregation rules
(A) In general
For purposes of this subsection, a person and all persons
related to such person (within the meaning of section 267(b) or
707(b)(1)) shall be treated as one person.
(B) Persons acting pursuant to plans or arrangements
If two or more persons act pursuant to a plan or arrangement
with respect to acquisitions of stock or securities in the
distributing corporation or controlled corporation, such
persons shall be treated as one person for purposes of this
subsection.
(8) Attribution from entities
(A) In general
Paragraph (2) of section 318(a) shall apply in determining
whether a person holds stock or securities in any corporation
(determined by substituting "10 percent" for "50 percent" in
subparagraph (C) of such paragraph (2) and by treating any
reference to stock as including a reference to securities).
(B) Deemed purchase rule
If -
(i) any person acquires by purchase an interest in any
entity, and
(ii) such person is treated under subparagraph (A) as
holding any stock or securities by reason of holding such
interest,
such stock or securities shall be treated as acquired by
purchase by such person on the later of the date of the
purchase of the interest in such entity or the date such stock
or securities are acquired by purchase by such entity.
(9) Regulations
The Secretary shall prescribe such regulations as may be
necessary to carry out the purposes of this subsection, including
-
(A) regulations to prevent the avoidance of the purposes of
this subsection through the use of related persons,
intermediaries, pass-thru entities, options, or other
arrangements, and
(B) regulations modifying the definition of the term
"purchase".
(e) Recognition of gain on certain distributions of stock or
securities in connection with acquisitions
(1) General rule
If there is a distribution to which this subsection applies,
any stock or securities in the controlled corporation shall not
be treated as qualified property for purposes of subsection
(c)(2) of this section or section 361(c)(2).
(2) Distributions to which subsection applies
(A) In general
This subsection shall apply to any distribution -
(i) to which this section (or so much of section 356 as
relates to this section) applies, and
(ii) which is part of a plan (or series of related
transactions) pursuant to which 1 or more persons acquire
directly or indirectly stock representing a 50-percent or
greater interest in the distributing corporation or any
controlled corporation.
(B) Plan presumed to exist in certain cases
If 1 or more persons acquire directly or indirectly stock
representing a 50-percent or greater interest in the
distributing corporation or any controlled corporation during
the 4-year period beginning on the date which is 2 years before
the date of the distribution, such acquisition shall be treated
as pursuant to a plan described in subparagraph (A)(ii) unless
it is established that the distribution and the acquisition are
not pursuant to a plan or series of related transactions.
(C) Certain plans disregarded
A plan (or series of related transactions) shall not be
treated as described in subparagraph (A)(ii) if, immediately
after the completion of such plan or transactions, the
distributing corporation and all controlled corporations are
members of a single affiliated group (as defined in section
1504 without regard to subsection (b) thereof).
(D) Coordination with subsection (d)
This subsection shall not apply to any distribution to which
subsection (d) applies.
(3) Special rules relating to acquisitions
(A) Certain acquisitions not taken into account
Except as provided in regulations, the following acquisitions
shall not be taken into account in applying paragraph
(2)(A)(ii):
(i) The acquisition of stock in any controlled corporation
by the distributing corporation.
(ii) The acquisition by a person of stock in any controlled
corporation by reason of holding stock or securities in the
distributing corporation.
(iii) The acquisition by a person of stock in any successor
corporation of the distributing corporation or any controlled
corporation by reason of holding stock or securities in such
distributing or controlled corporation.
(iv) The acquisition of stock in the distributing
corporation or any controlled corporation to the extent that
the percentage of stock owned directly or indirectly in such
corporation by each person owning stock in such corporation
immediately before the acquisition does not decrease.
This subparagraph shall not apply to any acquisition if the
stock held before the acquisition was acquired pursuant to a
plan (or series of related transactions) described in paragraph
(2)(A)(ii).
(B) Asset acquisitions
Except as provided in regulations, for purposes of this
subsection, if the assets of the distributing corporation or
any controlled corporation are acquired by a successor
corporation in a transaction described in subparagraph (A),
(C), or (D) of section 368(a)(1) or any other transaction
specified in regulations by the Secretary, the shareholders
(immediately before the acquisition) of the corporation
acquiring such assets shall be treated as acquiring stock in
the corporation from which the assets were acquired.
(4) Definition and special rules
For purposes of this subsection -
(A) 50-percent or greater interest
The term "50-percent or greater interest" has the meaning
given such term by subsection (d)(4).
(B) Distributions in title 11 or similar case
Paragraph (1) shall not apply to any distribution made in a
title 11 or similar case (as defined in section 368(a)(3)).
(C) Aggregation and attribution rules
(i) Aggregation
The rules of paragraph (7)(A) of subsection (d) shall
apply.
(ii) Attribution
Section 318(a)(2) shall apply in determining whether a
person holds stock or securities in any corporation. Except
as provided in regulations, section 318(a)(2)(C) shall be
applied without regard to the phrase "50 percent or more in
value" for purposes of the preceding sentence.
(D) Successors and predecessors
For purposes of this subsection, any reference to a
controlled corporation or a distributing corporation shall
include a reference to any predecessor or successor of such
corporation.
(E) Statute of limitations
If there is a distribution to which paragraph (1) applies -
(i) the statutory period for the assessment of any
deficiency attributable to any part of the gain recognized
under this subsection by reason of such distribution shall
not expire before the expiration of 3 years from the date the
Secretary is notified by the taxpayer (in such manner as the
Secretary may by regulations prescribe) that such
distribution occurred, and
(ii) such deficiency may be assessed before the expiration
of such 3-year period notwithstanding the provisions of any
other law or rule of law which would otherwise prevent such
assessment.
(5) Regulations
The Secretary shall prescribe such regulations as may be
necessary to carry out the purposes of this subsection, including
regulations -
(A) providing for the application of this subsection where
there is more than 1 controlled corporation,
(B) treating 2 or more distributions as 1 distribution where
necessary to prevent the avoidance of such purposes, and
(C) providing for the application of rules similar to the
rules of subsection (d)(6) where appropriate for purposes of
paragraph (2)(B).
(f) Section not to apply to certain intragroup distributions
Except as provided in regulations, this section (or so much of
section 356 as relates to this section) shall not apply to the
distribution of stock from 1 member of an affiliated group (as
defined in section 1504(a)) to another member of such group if such
distribution is part of a plan (or series of related transactions)
described in subsection (e)(2)(A)(ii) (determined after the
application of subsection (e)).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 113; Pub. L. 94-455, title XIX,
Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 96-589,
Sec. 4(e)(2), Dec. 24, 1980, 94 Stat. 3403; Pub. L. 100-203, title
X, Sec. 10223(b), Dec. 22, 1987, 101 Stat. 1330-411; Pub. L.
100-647, title I, Sec. 1018(d)(5)(C), title II, Sec. 2004(k)(1),
Nov. 10, 1988, 102 Stat. 3580, 3605; Pub. L. 101-508, title XI,
Secs. 11321(a), 11702(e)(2), Nov. 5, 1990, 104 Stat. 1388-460,
1388-515; Pub. L. 104-188, title I, Sec. 1704(t)(31), Aug. 20,
1996, 110 Stat. 1889; Pub. L. 105-34, title X, Secs. 1012(a),
(b)(1), 1014(c), (e)(1), (2), Aug. 5, 1997, 111 Stat. 914, 916,
921; Pub. L. 105-206, title VI, Sec. 6010(c)(2), July 22, 1998, 112
Stat. 813.)
-MISC1-
AMENDMENTS
1998 - Subsec. (e)(3)(A). Pub. L. 105-206, Sec. 6010(c)(2)(A),
substituted "shall not be taken into account in applying" for
"shall not be treated as described in" in introductory provisions.
Subsec. (e)(3)(A)(iv). Pub. L. 105-206, Sec. 6010(c)(2)(B), added
cl. (iv) and struck out former cl. (iv) which read as follows: "The
acquisition of stock in a corporation if shareholders owning
directly or indirectly stock possessing -
"(I) more than 50 percent of the total combined voting power of
all classes of stock entitled to vote, and
"(II) more than 50 percent of the total value of shares of all
classes of stock,
in the distributing corporation or any controlled corporation
before such acquisition own directly or indirectly stock possessing
such vote and value in such distributing or controlled corporation
after such acquisition."
1997 - Subsec. (a)(3)(C). Pub. L. 105-34, Sec. 1014(e)(1),
inserted "(including nonqualified preferred stock, as defined in
section 351(g)(2))" after "stock".
Subsec. (a)(3)(D). Pub. L. 105-34, Sec. 1014(c), added subpar.
(D).
Subsec. (a)(4)(A). Pub. L. 105-34, Sec. 1014(e)(2), inserted
"nonqualified preferred stock and" after "subsection (including".
Subsec. (e). Pub. L. 105-34, Sec. 1012(a), added subsec. (e).
Subsec. (f). Pub. L. 105-34, Sec. 1012(b)(1), added subsec. (f).
1996 - Subsec. (d)(7)(A). Pub. L. 104-188 inserted "section"
before "267(b)".
1990 - Subsec. (c). Pub. L. 101-508, Sec. 11321(a), added subsec.
(c) and struck out former subsec. (c) which read as follows:
"(1) In general. - Except as provided in paragraph (2), no gain
or loss shall be recognized to a corporation on any distribution to
which this section (or so much of section 356 as relates to this
section) applies and which is not in pursuance of a plan of
reorganization.
"(2) Distribution of appreciated property. -
"(A) In general. - If -
"(i) in a distribution referred to in paragraph (1), the
corporation distributes property other than stock or securities
in the controlled corporation, and
"(ii) the fair market value of such property exceeds its
adjusted basis (in the hands of the distributing corporation),
then gain shall be recognized to the distributing corporation as
if such property were sold to the distributee at its fair market
value.
"(B) Treatment of liabilities. - If any property distributed in
the distribution referred to in paragraph (1) is subject to a
liability or the shareholder assumes a liability of the
distributing corporation in connection with the distribution,
then, for purposes of subparagraph (A), the fair market value of
such property shall be treated as not less than the amount of
such liability.
"(3) Coordination with sections 311 and 336(a). - Sections 311
and 336(a) shall not apply to any distribution referred to in
paragraph (1)."
Pub. L. 101-508, Sec. 11702(e)(2), amended subsec. (c) generally.
Prior to amendment, subsec. (c) read as follows: "Section 311 shall
apply to any distribution -
"(1) to which this section (or so much of section 356 as
relates to this section) applies, and
"(2) which is not in pursuance of a plan of reorganization,
in the same manner as if such distribution were a distribution to
which subpart A of part I applies; except that subsection (b) of
section 311 shall not apply to any distribution of stock or
securities in the controlled corporation."
Subsec. (d). Pub. L. 101-508, Sec. 11321(a), added subsec. (d).
1988 - Subsec. (b)(2)(D)(i), (ii). Pub. L. 100-647, Sec.
2004(k)(1), added cls. (i) and (ii) and struck out former cls. (i)
and (ii) which read as follows:
"(i) was not acquired by any distributee corporation directly (or
through 1 or more corporations, whether through the distributing
corporation or otherwise) within the period described in
subparagraph (B), or
"(ii) was so acquired such distributee corporation within such
period, but such control was so acquired only by reason of
transactions in which gain or loss was not recognized in whole or
in part, or only by reason of such transactions combined with
acquisitions before the beginning of such period."
Subsec. (c). Pub. L. 100-647, Sec. 1018(d)(5)(C), added subsec.
(c).
1987 - Subsec. (b)(2)(D). Pub. L. 100-203, Sec. 10223(b)(3),
inserted at end "For purposes of subparagraph (D), all distributee
corporations which are members of the same affiliated group (as
defined in section 1504(a) without regard to section 1504(b)) shall
be treated as 1 distributee corporation."
Subsec. (b)(2)(D)(i). Pub. L. 100-203, Sec. 10223(b)(1), amended
cl. (i) generally. Prior to amendment, cl. (i) read as follows:
"was not acquired directly (or through one or more corporations) by
another corporation within the period described in subparagraph
(B), or".
Subsec. (b)(2)(D)(ii). Pub. L. 100-203, Sec. 10223(b)(2),
substituted "such distributee corporation" for "by another
corporation".
1980 - Subsec. (a)(3). Pub. L. 96-589 designated existing
provisions as subpars. (A) and (B) and added subpar. (C).
Subsec. (a)(4). Pub. L. 96-589, Sec. 4(e)(2), designated existing
provisions as subpar. (A), substituted "exchange if any property"
for "distribution if any property", inserted provisions excluding
property to which paragraph (3)(C) applies, and added subpar. (B).
1976 - Subsec. (a)(1)(D)(ii). Pub. L. 94-455 struck out "or his
delegate" after "Secretary".
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by section 1012(a), (b)(1) of Pub. L. 105-34
applicable, with transition rule, to distributions after Apr. 16,
1997, except that amendment by section 1012(a) applicable to such
distributions only if pursuant to a plan (or series of related
transactions) which involves an acquisition described in subsec.
(e)(2)(A)(ii) of this section occurring after such date, see
section 1012(d) of Pub. L. 105-34, as amended, set out as a note
under section 351 of this title.
Amendment by section 1014(c), (e)(1), (2) of Pub. L. 105-34
applicable, with certain exceptions, to transactions after June 8,
1997, see section 1014(f) of Pub. L. 105-34, set out as a note
under section 351 of this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Section 11321(c) of Pub. L. 101-508 provided that:
"(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section [amending this
section and section 361 of this title] shall apply to distributions
after October 9, 1990.
"(2) Binding contract exception. - The amendments made by this
section shall not apply to any distribution pursuant to a written
binding contract in effect on October 9, 1990, and at all times
thereafter before such distribution.
"(3) Transitional rules. - For purposes of subparagraphs (A) and
(B) of section 355(d)(3) of the Internal Revenue Code of 1986 (as
amended by subsection (a)), an acquisition shall be treated as
occurring on or before October 9, 1990, if -
"(A) such acquisition is pursuant to a written binding contract
in effect on October 9, 1990, and at all times thereafter before
such acquisition,
"(B) such acquisition is pursuant to a transaction which was
described in documents filed with the Securities and Exchange
Commission on or before October 9, 1990, or
"(C) such acquisition is pursuant to a transaction -
"(i) the material terms of which were described in a written
public announcement on or before October 9, 1990,
"(ii) which was the subject of a prior filing with the
Securities and Exchange Commission, and
"(iii) which is the subject of a subsequent filing with the
Securities and Exchange Commission before January 1, 1991."
Amendment by section 11702(e)(2) of Pub. L. 101-508 effective as
if included in the provision of the Technical and Miscellaneous
Revenue Act of 1988, Pub. L. 100-647, to which such amendment
relates, see section 11702(j) of Pub. L. 101-508, set out as a note
under section 59 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1018(d)(5)(C) of Pub. L. 100-647 effective,
except as otherwise provided, as if included in the provision of
the Tax Reform Act of 1986, Pub. L. 99-514, to which such amendment
relates, see section 1019(a) of Pub. L. 100-647, set out as a note
under section 1 of this title.
Amendment by section 2004(k)(1) of Pub. L. 100-647 effective,
except as otherwise provided, as if included in the provisions of
the Revenue Act of 1987, Pub. L. 100-203, title X, to which such
amendment relates, see section 2004(u) of Pub. L. 100-647, set out
as a note under section 56 of this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Amendment by Pub. L. 100-203 applicable to distributions or
transfers after Dec. 15, 1987, with exceptions for certain
distributee corporations and distributions covered by prior
transition rule, see section 10223(d) of Pub. L. 100-203, set out
as a note under section 304 of this title.
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-589 applicable to bankruptcy cases or
similar judicial proceedings commencing after Dec. 31, 1980, and to
exchanges which occur after Dec. 31, 1980, and which do not occur
in a bankruptcy case or similar judicial proceeding or in a
proceeding under Title 11, Bankruptcy, commenced on or before Dec.
31, 1980, with an exception permitting the debtor to make the
amendment applicable to such cases, proceedings or exchanges
commencing after Sept. 30, 1979, see section 7(c), (f) of Pub. L.
96-589, set out as a note under section 108 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 83, 108, 306, 312, 338,
346, 351, 355, 356, 358, 361, 367, 368, 424, 815, 877, 995, 1223,
1248, 1276, 2107, 2501, 6038B, 6166 of this title.
-End-
-CITE-
26 USC Sec. 356 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART III - CORPORATE ORGANIZATIONS AND REORGANIZATIONS
Subpart B - Effects on Shareholders and Security Holders
-HEAD-
Sec. 356. Receipt of additional consideration
-STATUTE-
(a) Gain on exchanges
(1) Recognition of gain
If -
(A) section 354 or 355 would apply to an exchange but for the
fact that
(B) the property received in the exchange consists not only
of property permitted by section 354 or 355 to be received
without the recognition of gain but also of other property or
money,
then the gain, if any, to the recipient shall be recognized, but
in an amount not in excess of the sum of such money and the fair
market value of such other property.
(2) Treatment as dividend
If an exchange is described in paragraph (1) but has the effect
of the distribution of a dividend (determined with the
application of section 318(a)), then there shall be treated as a
dividend to each distributee such an amount of the gain
recognized under paragraph (1) as is not in excess of his ratable
share of the undistributed earnings and profits of the
corporation accumulated after February 28, 1913. The remainder,
if any, of the gain recognized under paragraph (1) shall be
treated as gain from the exchange of property.
(b) Additional consideration received in certain distributions
If -
(1) section 355 would apply to a distribution but for the fact
that
(2) the property received in the distribution consists not only
of property permitted by section 355 to be received without the
recognition of gain, but also of other property or money,
then an amount equal to the sum of such money and the fair market
value of such other property shall be treated as a distribution of
property to which section 301 applies.
(c) Loss
If -
(1) section 354 would apply to an exchange or section 355 would
apply to an exchange or distribution, but for the fact that
(2) the property received in the exchange or distribution
consists not only of property permitted by section 354 or 355 to
be received without the recognition of gain or loss, but also of
other property or money,
then no loss from the exchange or distribution shall be recognized.
(d) Securities as other property
For purposes of this section -
(1) In general
Except as provided in paragraph (2), the term "other property"
includes securities.
(2) Exceptions
(A) Securities with respect to which nonrecognition of gain
would be permitted
The term "other property" does not include securities to the
extent that, under section 354 or 355, such securities would be
permitted to be received without the recognition of gain.
(B) Greater principal amount in section 354 exchange
If -
(i) in an exchange described in section 354 (other than
subsection (c) thereof), securities of a corporation a party
to the reorganization are surrendered and securities of any
corporation a party to the reorganization are received, and
(ii) the principal amount of such securities received
exceeds the principal amount of such securities surrendered,
then, with respect to such securities received, the term "other
property" means only the fair market value of such excess. For
purposes of this subparagraph and subparagraph (C) if no
securities are surrendered, the excess shall be the entire
principal amount of the securities received.
(C) Greater principal amount in section 355 transaction
If, in an exchange or distribution described in section 355,
the principal amount of the securities in the controlled
corporation which are received exceeds the principal amount of
the securities in the distributing corporation which are
surrendered, then, with respect to such securities received,
the term "other property" means only the fair market value of
such excess.
(e) Nonqualified preferred stock treated as other property
For purposes of this section -
(1) In general
Except as provided in paragraph (2), the term "other property"
includes nonqualified preferred stock (as defined in section
351(g)(2)).
(2) Exception
The term "other property" does not include nonqualified
preferred stock (as so defined) to the extent that, under section
354 or 355, such preferred stock would be permitted to be
received without the recognition of gain.
(f) Exchanges for section 306 stock
Notwithstanding any other provision of this section, to the
extent that any of the other property (or money) is received in
exchange for section 306 stock, an amount equal to the fair market
value of such other property (or the amount of such money) shall be
treated as a distribution of property to which section 301 applies.
(g) Transactions involving gift or compensation
For special rules for a transaction described in section 354,
355, or this section, but which -
(1) results in a gift, see section 2501 and following, or
(2) has the effect of the payment of compensation, see
section 61(a)(1).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 115; Pub. L. 94-253, Sec. 1(c),
Mar. 31, 1976, 90 Stat. 296; Pub. L. 97-248, title II, Sec. 227(b),
Sept. 3, 1982, 96 Stat. 492; Pub. L. 101-508, title XI, Sec.
11801(c)(8)(E), Nov. 5, 1990, 104 Stat. 1388-524; Pub. L. 105-34,
title X, Sec. 1014(d), Aug. 5, 1997, 111 Stat. 921.)
-MISC1-
AMENDMENTS
1997 - Subsecs. (e) to (g). Pub. L. 105-34 added subsec. (e) and
redesignated former subsecs. (e) and (f) as (f) and (g),
respectively.
1990 - Subsec. (d)(2)(B)(i). Pub. L. 101-508 struck out "or (d)"
after "subsection (c)".
1982 - Subsec. (a)(2). Pub. L. 97-248 inserted "(determined with
the application of section 318(a))" after "distribution of a
dividend".
1976 - Subsec. (d)(2)(B)(i). Pub. L. 94-253 substituted
"subsection (c) or (d) thereof" for "subsection (c) thereof".
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable, with certain exceptions,
to transactions after June 8, 1997, see section 1014(f) of Pub. L.
105-34, set out as a note under section 351 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Section 227(c)(2) of Pub. L. 97-248 provided that: "The amendment
made by subsection (b) [amending this section] shall apply to
distributions after August 31, 1982, in taxable years ending after
such date."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-253 applicable to taxable years ending
after Mar. 31, 1976, see section 2 of Pub. L. 94-253, set out as a
note under section 354 of this title.
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 29 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 83, 108, 306, 312, 338,
351, 354, 355, 358, 367, 368, 424, 453, 1059, 1223, 1276, 6038B,
6166 of this title.
-End-
-CITE-
26 USC Sec. 357 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART III - CORPORATE ORGANIZATIONS AND REORGANIZATIONS
Subpart B - Effects on Shareholders and Security Holders
-HEAD-
Sec. 357. Assumption of liability
-STATUTE-
(a) General rule
Except as provided in subsections (b) and (c), if -
(1) the taxpayer receives property which would be permitted to
be received under section 351 or 361 without the recognition of
gain if it were the sole consideration, and
(2) as part of the consideration, another party to the exchange
assumes a liability of the taxpayer,
then such assumption shall not be treated as money or other
property, and shall not prevent the exchange from being within the
provisions of section 351 or 361, as the case may be.
(b) Tax avoidance purpose
(1) In general
If, taking into consideration the nature of the liability and
the circumstances in the light of which the arrangement for the
assumption was made, it appears that the principal purpose of the
taxpayer with respect to the assumption described in subsection
(a) -
(A) was a purpose to avoid Federal income tax on the
exchange, or
(B) if not such purpose, was not a bona fide business
purpose,
then such assumption (in the total amount of the liability
assumed pursuant to such exchange) shall, for purposes of section
351 or 361 (as the case may be), be considered as money received
by the taxpayer on the exchange.
(2) Burden of proof
In any suit or proceeding where the burden is on the taxpayer
to prove such assumption is not to be treated as money received
by the taxpayer, such burden shall not be considered as sustained
unless the taxpayer sustains such burden by the clear
preponderance of the evidence.
(c) Liabilities in excess of basis
(1) In general
In the case of an exchange -
(A) to which section 351 applies, or
(B) to which section 361 applies by reason of a plan of
reorganization within the meaning of section 368(a)(1)(D),
if the sum of the amount of the liabilities assumed exceeds the
total of the adjusted basis of the property transferred pursuant
to such exchange, then such excess shall be considered as a gain
from the sale or exchange of a capital asset or of property which
is not a capital asset, as the case may be.
(2) Exceptions
Paragraph (1) shall not apply to any exchange -
(A) to which subsection (b)(1) of this section applies, or
(B) which is pursuant to a plan of reorganization within the
meaning of section 368(a)(1)(G) where no former shareholder of
the transferor corporation receives any consideration for his
stock.
(3) Certain liabilities excluded
(A) In general
If a taxpayer transfers, in an exchange to which section 351
applies, a liability the payment of which either -
(i) would give rise to a deduction, or
(ii) would be described in section 736(a),
then, for purposes of paragraph (1), the amount of such
liability shall be excluded in determining the amount of
liabilities assumed.
(B) Exception
Subparagraph (A) shall not apply to any liability to the
extent that the incurrence of the liability resulted in the
creation of, or an increase in, the basis of any property.
(d) Determination of amount of liability assumed
(1) In general
For purposes of this section, section 358(d), section 358(h),
section 362(d), section 368(a)(1)(C), and section 368(a)(2)(B),
except as provided in regulations -
(A) a recourse liability (or portion thereof) shall be
treated as having been assumed if, as determined on the basis
of all facts and circumstances, the transferee has agreed to,
and is expected to, satisfy such liability (or portion),
whether or not the transferor has been relieved of such
liability; and
(B) except to the extent provided in paragraph (2), a
nonrecourse liability shall be treated as having been assumed
by the transferee of any asset subject to such liability.
(2) Exception for nonrecourse liability
The amount of the nonrecourse liability treated as described in
paragraph (1)(B) shall be reduced by the lesser of -
(A) the amount of such liability which an owner of other
assets not transferred to the transferee and also subject to
such liability has agreed with the transferee to, and is
expected to, satisfy; or
(B) the fair market value of such other assets (determined
without regard to section 7701(g)).
(3) Regulations
The Secretary shall prescribe such regulations as may be
necessary to carry out the purposes of this subsection and
section 362(d). The Secretary may also prescribe regulations
which provide that the manner in which a liability is treated as
assumed under this subsection is applied, where appropriate,
elsewhere in this title.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 116; June 29, 1956, ch. 463,
Sec. 2, 70 Stat. 403; Pub. L. 95-600, title III, Sec. 365(a), Nov.
6, 1978, 92 Stat. 2854; Pub. L. 96-222, title I, Sec. 103(a)(12),
Apr. 1, 1980, 94 Stat. 213; Pub. L. 96-589, Sec. 4(h)(2), Dec. 24,
1980, 94 Stat. 3405; Pub. L. 101-508, title XI, Sec.
11801(c)(8)(F), Nov. 5, 1990, 104 Stat. 1388-524; Pub. L. 106-36,
title III, Sec. 3001(a)(1), (b)(1), (d)(2)-(5), June 25, 1999, 113
Stat. 181-184; Pub. L. 106-554, Sec. 1(a)(7) [title III, Sec.
309(b)], Dec. 21, 2000, 114 Stat. 2763, 2763A-638.)
-MISC1-
AMENDMENTS
2000 - Subsec. (d)(1). Pub. L. 106-554 inserted "section 358(h),"
after "section 358(d)," in introductory provisions.
1999 - Subsec. (a). Pub. L. 106-36, Sec. 3001(d)(2), struck out
"or acquisition" after "assumption" in concluding provisions.
Subsec. (a)(2). Pub. L. 106-36, Sec. 3001(a)(1), struck out ", or
acquires from the taxpayer property subject to a liability" before
comma at end.
Subsec. (b). Pub. L. 106-36, Sec. 3001(d)(2), (3), struck out "or
acquisition" after "assumption" wherever appearing and struck out
"or acquired" after "liability assumed" in concluding provisions of
par. (1).
Subsec. (c)(1). Pub. L. 106-36, Sec. 3001(d)(4), struck out ",
plus the amount of the liabilities to which the property is
subject," after "liabilities assumed" in concluding provisions.
Subsec. (c)(3)(A). Pub. L. 106-36, Sec. 3001(d)(5), struck out
"or to which the property transferred is subject" after
"liabilities assumed" in concluding provisions.
Subsec. (d). Pub. L. 106-36, Sec. 3001(b)(1), added subsec. (d).
1990 - Subsecs. (a), (b)(1). Pub. L. 101-508, Sec.
11801(c)(8)(F)(i), substituted "351 or 361" for "351, 361, 371, or
374" wherever appearing.
Subsec. (c)(2). Pub. L. 101-508, Sec. 11801(c)(8)(F)(ii),
inserted "or" at end of subpar. (A), redesignated subpar. (C) as
(B), and struck out former subpar. (B) which read as follows: "to
which section 371 or 374 applies, or".
1980 - Subsec. (c)(2)(C). Pub. L. 96-589 added subpar. (C).
Subsec. (c)(3)(A). Pub. L. 96-222 struck out requirement that
only taxpayers who compute taxable income under the cash receipts
and disbursements method of accounting are eligible to exclude
certain liabilities in determining the amount of gain realized on a
transfer to a controlled corporation and the requirement that the
excluded liability must be an account payable.
1978 - Subsec. (c)(3). Pub. L. 95-600 added par. (3).
1956 - Subsec. (a). Act June 29, 1956, Sec. 2(1), substituted
"371, or 374" for "or 371" in two places.
Subsec. (b). Act June 29, 1956, Sec. 2(1), substituted "371, or
374" for "or 371".
Subsec. (c)(2)(B). Act June 29, 1956, Sec. 2(2), substituted "371
or 374" for "371".
EFFECTIVE DATE OF 2000 AMENDMENT
Amendment by Pub. L. 106-554 applicable to assumptions of
liability after Oct. 18, 1999, see section 1(a)(7) [title III, Sec.
309(d)] of Pub. L. 106-554, set out as a note under section 358 of
this title.
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-36 applicable to transfers after Oct.
18, 1998, see section 3001(e) of Pub. L. 106-36, set out as a note
under section 351 of this title.
EFFECTIVE DATE OF 1980 AMENDMENTS
Amendment by Pub. L. 96-589 applicable to bankruptcy cases or
similar judicial proceedings commencing after Dec. 31, 1980, with
exception permitting the debtor to make the amendment applicable to
such cases or proceedings commencing after Sept. 30, 1979, see
section 7(c)(1), (f) of Pub. L. 96-589, set out as a note under
section 108 of this title.
Amendment by Pub. L. 96-222 effective, except as otherwise
provided, as if it had been included in the provisions of the
Revenue Act of 1978, Pub. L. 95-600, to which such amendment
relates, see section 201 of Pub. L. 96-222, set out as a note under
section 32 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Section 365(c) of Pub. L. 95-600 provided that: "The amendments
made by subsections (a) and (b) [amending this section and section
358 of this title] shall apply to transfers occurring on or after
the date of the enactment of this Act [Nov. 6, 1978]."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 29 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 304, 351, 358, 368, 584,
1031 of this title.
-End-
-CITE-
26 USC Sec. 358 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART III - CORPORATE ORGANIZATIONS AND REORGANIZATIONS
Subpart B - Effects on Shareholders and Security Holders
-HEAD-
Sec. 358. Basis to distributees
-STATUTE-
(a) General rule
In the case of an exchange to which section 351, 354, 355, 356,
or 361 applies -
(1) Nonrecognition property
The basis of the property permitted to be received under such
section without the recognition of gain or loss shall be the same
as that of the property exchanged -
(A) decreased by -
(i) the fair market value of any other property (except
money) received by the taxpayer,
(ii) the amount of any money received by the taxpayer, and
(iii) the amount of loss to the taxpayer which was
recognized on such exchange, and
(B) increased by -
(i) the amount which was treated as a dividend, and
(ii) the amount of gain to the taxpayer which was
recognized on such exchange (not including any portion of
such gain which was treated as a dividend).
(2) Other property
The basis of any other property (except money) received by the
taxpayer shall be its fair market value.
(b) Allocation of basis
(1) In general
Under regulations prescribed by the Secretary, the basis
determined under subsection (a)(1) shall be allocated among the
properties permitted to be received without the recognition of
gain or loss.
(2) Special rule for section 355
In the case of an exchange to which section 355 (or so much of
section 356 as relates to section 355) applies, then in making
the allocation under paragraph (1) of this subsection, there
shall be taken into account not only the property so permitted to
be received without the recognition of gain or loss, but also the
stock or securities (if any) of the distributing corporation
which are retained, and the allocation of basis shall be made
among all such properties.
(c) Section 355 transactions which are not exchanges
For purposes of this section, a distribution to which section 355
(or so much of section 356 as relates to section 355) applies shall
be treated as an exchange, and for such purposes the stock and
securities of the distributing corporation which are retained shall
be treated as surrendered, and received back, in the exchange.
(d) Assumption of liability
(1) In general
Where, as part of the consideration to the taxpayer, another
party to the exchange assumed a liability of the taxpayer, such
assumption shall, for purposes of this section, be treated as
money received by the taxpayer on the exchange.
(2) Exception
Paragraph (1) shall not apply to the amount of any liability
excluded under section 357(c)(3).
(e) Exception
This section shall not apply to property acquired by a
corporation by the exchange of its stock or securities (or the
stock or securities of a corporation which is in control of the
acquiring corporation) as consideration in whole or in part for the
transfer of the property to it.
(f) Definition of nonrecognition property in case of section 361
exchange
For purposes of this section, the property permitted to be
received under section 361 without the recognition of gain or loss
shall be treated as consisting only of stock or securities in
another corporation a party to the reorganization.
(g) Adjustments in intragroup transactions involving section 355
In the case of a distribution to which section 355 (or so much of
section 356 as relates to section 355) applies and which involves
the distribution of stock from 1 member of an affiliated group (as
defined in section 1504(a) without regard to subsection (b)
thereof) to another member of such group, the Secretary may,
notwithstanding any other provision of this section, provide
adjustments to the adjusted basis of any stock which -
(1) is in a corporation which is a member of such group, and
(2) is held by another member of such group,
to appropriately reflect the proper treatment of such distribution.
(h) Special rules for assumption of liabilities to which subsection
(d) does not apply
(1) In general
If, after application of the other provisions of this section
to an exchange or series of exchanges, the basis of property to
which subsection (a)(1) applies exceeds the fair market value of
such property, then such basis shall be reduced (but not below
such fair market value) by the amount (determined as of the date
of the exchange) of any liability -
(A) which is assumed by another person as part of the
exchange, and
(B) with respect to which subsection (d)(1) does not apply to
the assumption.
(2) Exceptions
Except as provided by the Secretary, paragraph (1) shall not
apply to any liability if -
(A) the trade or business with which the liability is
associated is transferred to the person assuming the liability
as part of the exchange, or
(B) substantially all of the assets with which the liability
is associated are transferred to the person assuming the
liability as part of the exchange.
(3) Liability
For purposes of this subsection, the term "liability" shall
include any fixed or contingent obligation to make payment,
without regard to whether the obligation is otherwise taken into
account for purposes of this title.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 117; Pub. L. 85-866, title I,
Sec. 21(a), Sept. 2, 1958, 72 Stat. 1620; Pub. L. 90-621, Sec.
2(a), Oct. 22, 1968, 82 Stat. 1311; Pub. L. 94-253, Sec. 1(b), Mar.
31, 1976, 90 Stat. 296; Pub. L. 94-455, title XIX, Sec.
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 95-600, title
III, Sec. 365(b), Nov. 6, 1978, 92 Stat. 2855; Pub. L. 100-647,
title I, Sec. 1018(d)(5)(B), Nov. 10, 1988, 102 Stat. 3580; Pub. L.
101-508, title XI, Sec. 11801(c)(8)(G), Nov. 5, 1990, 104 Stat.
1388-524; Pub. L. 105-34, title X, Sec. 1012(b)(2), Aug. 5, 1997,
111 Stat. 916; Pub. L. 106-36, title III, Sec. 3001(a)(2), (d)(6),
June 25, 1999, 113 Stat. 182, 184; Pub. L. 106-554, Sec. 1(a)(7)
[title III, Sec. 309(a)], Dec. 21, 2000, 114 Stat. 2763, 2763A-638;
Pub. L. 107-147, title IV, Sec. 412(c), Mar. 9, 2002, 116 Stat.
53.)
-MISC1-
AMENDMENTS
2002 - Subsec. (h)(1)(A). Pub. L. 107-147 amended subpar. (A)
generally. Prior to amendment, subpar. (A) read as follows: "which
is assumed in exchange for such property, and".
2000 - Subsec. (h). Pub. L. 106-554 added subsec. (h).
1999 - Subsec. (d)(1). Pub. L. 106-36 struck out "or acquired
from the taxpayer property subject to a liability" after "liability
of the taxpayer" and "or acquisition (in the amount of the
liability)" after "such assumption".
1997 - Subsec. (g). Pub. L. 105-34 added subsec. (g).
1990 - Subsec. (a). Pub. L. 101-508, Sec. 11801(c)(8)(G)(i),
substituted "or 361" for "361, 371(b), or 374".
Subsec. (b)(3). Pub. L. 101-508, Sec. 11801(c)(8)(G)(ii), struck
out par. (3) "Certain exchanges involving ConRail" which read as
follows: "To the extent provided in regulations prescribed by the
Secretary in the case of an exchange to which section 354(d) (or so
much of section 356 as relates to section 354(d)) or section 374(c)
applies, for purposes of allocating basis under paragraph (1),
stock of the Consolidated Rail Corporation and the certificate of
value of the United States Railway Association which relates to
such stock shall, so long as they are held by the same person, be
treated as one property."
1988 - Subsec. (f). Pub. L. 100-647 added subsec. (f).
1978 - Subsec. (d). Pub. L. 95-600 designated existing provisions
as par. (1) and added par. (2).
1976 - Subsec. (a). Pub. L. 94-253, Sec. 1(b)(1), substituted
"371(b), or 374" for "or 371(b)".
Subsec. (b)(1), (3). Pub. L. 94-455 struck out "or his delegate"
after "Secretary".
Pub. L. 94-253, Sec. 1(b)(2), added par. (3).
1968 - Subsec. (e). Pub. L. 90-621 substituted exchange of stock
and securities for issuance of stock or securities as the
transaction involved and inserted parenthetical provisions making
reference to stock or securities of a corporation which is in
control of the acquiring corporation.
1958 - Subsec. (a)(1)(A)(iii). Pub. L. 85-866 added cl. (iii).
EFFECTIVE DATE OF 2002 AMENDMENT
Amendment by Pub. L. 107-147 effective as if included in the
provisions of the Community Renewal Tax Relief Act of 2000 [H.R.
5662, as enacted by Pub. L. 106-554], to which such amendment
relates, see section 412(e) of Pub. L. 107-147, set out as a note
under section 151 of this title.
EFFECTIVE DATE OF 2000 AMENDMENT
Pub. L. 106-554, Sec. 1(a)(7) [title III, Sec. 309(d)], Dec. 21,
2000, 114 Stat. 2763, 2763A-638, provided that:
"(1) In general. - The amendments made by this section [amending
this section and section 357 of this title] shall apply to
assumptions of liability after October 18, 1999.
"(2) Rules. - The rules prescribed under subsection (c) [see
Application of Comparable Rules to Partnerships and S Corporations
note below] shall apply to assumptions of liability after October
18, 1999, or such later date as may be prescribed in such rules."
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-36 applicable to transfers after Oct.
18, 1998, see section 3001(e) of Pub. L. 106-36, set out as a note
under section 351 of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable, with certain exceptions,
to distributions after Apr. 16, 1997, pursuant to a plan (or series
of related transactions) which involves an acquisition described in
section 355(e)(2)(A)(ii) of this title occurring after such date,
see section 1012(d) of Pub. L. 105-34, set out as a note under
section 351 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by Pub. L. 95-600 applicable to transfers occurring on
or after Nov. 6, 1978, see section 365(c) of Pub. L. 95-600, set
out as a note under section 357 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-253 applicable to taxable years ending
after Mar. 31, 1976, see section 2 of Pub. L. 94-253, set out as a
note under section 354 of this title.
EFFECTIVE DATE OF 1968 AMENDMENT
Section 2(c) of Pub. L. 90-621 provided that: "The amendments
made by subsections (a) and (b) [amending this section and section
362 of this title] shall apply only in respect of plans of
reorganization adopted after the date of the enactment of this Act
[Oct. 22, 1968]."
EFFECTIVE DATE OF 1958 AMENDMENT
Section 21(b) of Pub. L. 85-866, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendment made by subsection (a) [amending this section] shall
apply as provided in section 393 of the Internal Revenue Code of
1986 [formerly I.R.C. 1954] as if the clause (iii) added by such
amendment had been included in such Code at the time of its
enactment [Aug. 16, 1954]."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 29 of this title.
-TRANS-
ABOLITION OF UNITED STATES RAILWAY ASSOCIATION AND TRANSFER OF
FUNCTIONS
United States Railway Association abolished effective Apr. 1,
1987, all powers, duties, rights, and obligations of Association
relating to Consolidated Rail Corporation under Regional Rail
Reorganization Act of 1973 (45 U.S.C. 701 et seq.) transferred to
Secretary of Transportation on Jan. 1, 1987, and any securities of
Corporation held by Association transferred to Secretary of
Transportation on Oct. 21, 1986, see section 1341 of Title 45,
Railroads.
-MISC2-
APPLICATION OF COMPARABLE RULES TO PARTNERSHIPS AND S CORPORATIONS
Pub. L. 106-554, Sec. 1(a)(7) [title III, Sec. 309(c)], Dec. 21,
2000, 114 Stat. 2763, 2763A-638, provided that: "The Secretary of
the Treasury or his delegate -
"(1) shall prescribe rules which provide appropriate
adjustments under subchapter K of chapter 1 of the Internal
Revenue Code of 1986 to prevent the acceleration or duplication
of losses through the assumption of (or transfer of assets
subject to) liabilities described in section 358(h)(3) of such
Code (as added by subsection (a)) in transactions involving
partnerships, and
"(2) may prescribe rules which provide appropriate adjustments
under subchapter S of chapter 1 of such Code in transactions
described in paragraph (1) involving S corporations rather than
partnerships."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 304, 351, 357 of this
title.
-End-
-CITE-
26 USC Subpart C - Effects on Corporation 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART III - CORPORATE ORGANIZATIONS AND REORGANIZATIONS
Subpart C - Effects on Corporation
-HEAD-
SUBPART C - EFFECTS ON CORPORATION
-MISC1-
Sec.
361. Nonrecognition of gain or loss to corporations;
treatment of distributions.
362. Basis to corporations.
[363. Repealed.]
AMENDMENTS
1988 - Pub. L. 100-647, title I, Sec. 1018(d)(5)(F), Nov. 10,
1988, 102 Stat. 3580, substituted "corporations; treatment of
distributions." for "transferor corporation; other treatment of
transferor corporation; etc." in item 361.
1986 - Pub. L. 99-514, title XVIII, Sec. 1804(g)(3), Oct. 22,
1986, 100 Stat. 2806, substituted "to transferor corporation; other
treatment of transferor corporation; etc." for "corporations" in
item 361.
1976 - Pub. L. 94-455, title XIX, Sec. 1901(b)(13), Oct. 4, 1976,
90 Stat. 1795, struck out item 363 "Effect on earnings and
profits".
-End-
-CITE-
26 USC Sec. 361 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART III - CORPORATE ORGANIZATIONS AND REORGANIZATIONS
Subpart C - Effects on Corporation
-HEAD-
Sec. 361. Nonrecognition of gain or loss to corporations; treatment
of distributions
-STATUTE-
(a) General rule
No gain or loss shall be recognized to a corporation if such
corporation is a party to a reorganization and exchanges property,
in pursuance of the plan of reorganization, solely for stock or
securities in another corporation a party to the reorganization.
(b) Exchanges not solely in kind
(1) Gain
If subsection (a) would apply to an exchange but for the fact
that the property received in exchange consists not only of stock
or securities permitted by subsection (a) to be received without
the recognition of gain, but also of other property or money,
then -
(A) Property distributed
If the corporation receiving such other property or money
distributes it in pursuance of the plan of reorganization, no
gain to the corporation shall be recognized from the exchange,
but
(B) Property not distributed
If the corporation receiving such other property or money
does not distribute it in pursuance of the plan of
reorganization, the gain, if any, to the corporation shall be
recognized.
The amount of gain recognized under subparagraph (B) shall not
exceed the sum of the money and the fair market value of the
other property so received which is not so distributed.
(2) Loss
If subsection (a) would apply to an exchange but for the fact
that the property received in exchange consists not only of
property permitted by subsection (a) to be received without the
recognition of gain or loss, but also of other property or money,
then no loss from the exchange shall be recognized.
(3) Treatment of transfers to creditors
For purposes of paragraph (1), any transfer of the other
property or money received in the exchange by the corporation to
its creditors in connection with the reorganization shall be
treated as a distribution in pursuance of the plan of
reorganization. The Secretary may prescribe such regulations as
may be necessary to prevent avoidance of tax through abuse of the
preceding sentence or subsection (c)(3).
(c) Treatment of distributions
(1) In general
Except as provided in paragraph (2), no gain or loss shall be
recognized to a corporation a party to a reorganization on the
distribution to its shareholders of property in pursuance of the
plan of reorganization.
(2) Distributions of appreciated property
(A) In general
If -
(i) in a distribution referred to in paragraph (1), the
corporation distributes property other than qualified
property, and
(ii) the fair market value of such property exceeds its
adjusted basis (in the hands of the distributing
corporation),
then gain shall be recognized to the distributing corporation
as if such property were sold to the distributee at its fair
market value.
(B) Qualified property
For purposes of this subsection, the term "qualified
property" means -
(i) any stock in (or right to acquire stock in) the
distributing corporation or obligation of the distributing
corporation, or
(ii) any stock in (or right to acquire stock in) another
corporation which is a party to the reorganization or
obligation of another corporation which is such a party if
such stock (or right) or obligation is received by the
distributing corporation in the exchange.
(C) Treatment of liabilities
If any property distributed in the distribution referred to
in paragraph (1) is subject to a liability or the shareholder
assumes a liability of the distributing corporation in
connection with the distribution, then, for purposes of
subparagraph (A), the fair market value of such property shall
be treated as not less than the amount of such liability.
(3) Treatment of certain transfers to creditors
For purposes of this subsection, any transfer of qualified
property by the corporation to its creditors in connection with
the reorganization shall be treated as a distribution to its
shareholders pursuant to the plan of reorganization.
(4) Coordination with other provisions
Section 311 and subpart B of part II of this subchapter shall
not apply to any distribution referred to in paragraph (1).
(5) Cross reference
For provision providing for recognition of gain in certain
distributions, see section 355(d).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 118; Pub. L. 99-514, title
XVIII, Sec. 1804(g)(1), Oct. 22, 1986, 100 Stat. 2805; Pub. L.
100-647, title I, Sec. 1018(d)(5)(A), Nov. 10, 1988, 102 Stat.
3578; Pub. L. 101-508, title XI, Sec. 11321(b), Nov. 5, 1990, 104
Stat. 1388-463.)
-MISC1-
AMENDMENTS
1990 - Subsec. (c)(5). Pub. L. 101-508 added par. (5).
1988 - Pub. L. 100-647 substituted "corporations; treatment of
distributions" for "transferor corporations; other treatment of
transferor corporation; etc." in section catchline and amended text
generally, revising content and structure of section.
1986 - Pub. L. 99-514 amended section generally. Prior to
amendment, section related to whether gain or loss was recognized
if corporation which was party to reorganization exchanged
property, pursuant to plan of reorganization, for stock or
securities in another corporation which was party to the
reorganization or for other property or money.
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by Pub. L. 101-508 applicable to distributions after
Oct. 9, 1990, but not applicable to any distribution pursuant to a
written binding contract in effect on Oct. 9, 1990, and at all
times thereafter before such distribution, see section 11321(c) of
Pub. L. 101-508, set out as a note under section 355 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1804(g)(4) of Pub. L. 99-514 provided that: "The
amendments made by this subsection [amending this section and
section 368 of this title] shall apply to plans of reorganizations
adopted after the date of the enactment of this Act [Oct. 22,
1986]."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 168, 197, 332, 355, 357,
358, 367, 381, 1245, 1248, 1250, 6038B of this title.
-End-
-CITE-
26 USC Sec. 362 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART III - CORPORATE ORGANIZATIONS AND REORGANIZATIONS
Subpart C - Effects on Corporation
-HEAD-
Sec. 362. Basis to corporations
-STATUTE-
(a) Property acquired by issuance of stock or as paid-in surplus
If property was acquired on or after June 22, 1954, by a
corporation -
(1) in connection with a transaction to which section 351
(relating to transfer of property to corporation controlled by
transferor) applies, or
(2) as paid-in surplus or as a contribution to capital,
then the basis shall be the same as it would be in the hands of the
transferor, increased in the amount of gain recognized to the
transferor on such transfer.
(b) Transfers to corporations
If property was acquired by a corporation in connection with a
reorganization to which this part applies, then the basis shall be
the same as it would be in the hands of the transferor, increased
in the amount of gain recognized to the transferor on such
transfer. This subsection shall not apply if the property acquired
consists of stock or securities in a corporation a party to the
reorganization, unless acquired by the exchange of stock or
securities of the transferee (or of a corporation which is in
control of the transferee) as the consideration in whole or in part
for the transfer.
(c) Special rule for certain contributions to capital
(1) Property other than money
Notwithstanding subsection (a)(2), if property other than money
-
(A) is acquired by a corporation, on or after June 22, 1954,
as a contribution to capital, and
(B) is not contributed by a shareholder as such,
then the basis of such property shall be zero.
(2) Money
Notwithstanding subsection (a)(2), if money -
(A) is received by a corporation, on or after June 22, 1954,
as a contribution to capital, and
(B) is not contributed by a shareholder as such,
then the basis of any property acquired with such money during
the 12-month period beginning on the day the contribution is
received shall be reduced by the amount of such contribution. The
excess (if any) of the amount of such contribution over the
amount of the reduction under the preceding sentence shall be
applied to the reduction (as of the last day of the period
specified in the preceding sentence) of the basis of any other
property held by the taxpayer. The particular properties to which
the reductions required by this paragraph shall be allocated
shall be determined under regulations prescribed by the
Secretary.
(d) Limitation on basis increase attributable to assumption of
liability
(1) In general
In no event shall the basis of any property be increased under
subsection (a) or (b) above the fair market value of such
property (determined without regard to section 7701(g)) by reason
of any gain recognized to the transferor as a result of the
assumption of a liability.
(2) Treatment of gain not subject to tax
Except as provided in regulations, if -
(A) gain is recognized to the transferor as a result of an
assumption of a nonrecourse liability by a transferee which is
also secured by assets not transferred to such transferee; and
(B) no person is subject to tax under this title on such
gain,
then, for purposes of determining basis under subsections (a) and
(b), the amount of gain recognized by the transferor as a result
of the assumption of the liability shall be determined as if the
liability assumed by the transferee equaled such transferee's
ratable portion of such liability determined on the basis of the
relative fair market values (determined without regard to section
7701(g)) of all of the assets subject to such liability.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 118; Pub. L. 90-621, Sec. 2(b),
Oct. 22, 1968, 82 Stat. 1311; Pub. L. 94-455, title XIX, Sec.
1906(b)(13)(A), title XXI, Sec. 2120(b), Oct. 4, 1976, 90 Stat.
1834, 1913; Pub. L. 99-514, title VIII, Sec. 824(b), Oct. 22, 1986,
100 Stat. 2374; Pub. L. 106-36, title III, Sec. 3001(b)(2), June
25, 1999, 113 Stat. 182.)
-MISC1-
AMENDMENTS
1999 - Subsec. (d). Pub. L. 106-36 added subsec. (d).
1986 - Subsec. (c)(3). Pub. L. 99-514 struck out par. (3)
relating to exceptions for contributions in aid of construction.
1976 - Subsec. (c)(2)(B). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
Subsec. (c)(3). Pub. L. 94-455, Sec. 2120(b), added par. (3).
1968 - Subsec. (b). Pub. L. 90-621 substituted the exchange of
stock or securities of the transferee (or of a corporation which is
in control of the transferee) for the issuance of stock or
securities of the transferee as the transaction rendering the
subsection applicable.
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-36 applicable to transfers after Oct.
18, 1998, see section 3001(e) of Pub. L. 106-36, set out as a note
under section 351 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to amounts received after
Dec. 31, 1986, in taxable years ending after such date, with
certain exceptions and qualifications, see section 824(c) of Pub.
L. 99-514, set out as a note under section 118 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 2120(b) of Pub. L. 94-455 applicable to
contributions made after Jan. 31, 1976, see section 2120(c) of Pub.
L. 94-455, set out as a note under section 118 of this title.
EFFECTIVE DATE OF 1968 AMENDMENT
Amendment by Pub. L. 90-621 applicable only in respect of plans
of reorganization adopted after Oct. 22, 1968, see section 2(c) of
Pub. L. 90-621, set out as a note under section 358 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 118, 351, 357 of this
title.
-End-
-CITE-
26 USC Sec. 363 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART III - CORPORATE ORGANIZATIONS AND REORGANIZATIONS
Subpart C - Effects on Corporation
-HEAD-
[Sec. 363. Repealed. Pub. L. 94-455, title XIX, Sec. 1901(a)(49),
Oct. 4, 1976, 90 Stat. 1773]
-MISC1-
Section, act Aug. 16, 1954, ch. 736, 68A Stat. 119, related to
cross reference for rules relating to effect on earnings and
profits of transactions to which this part applies.
EFFECTIVE DATE OF REPEAL
Repeal effective for taxable years beginning after Dec. 31, 1976,
see section 1901(d) of Pub. L. 94-455, set out as an Effective Date
of 1976 Amendment note under section 2 of this title.
-End-
-CITE-
26 USC Subpart D - Special Rule; Definitions 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART III - CORPORATE ORGANIZATIONS AND REORGANIZATIONS
Subpart D - Special Rule; Definitions
-HEAD-
SUBPART D - SPECIAL RULE; DEFINITIONS
-MISC1-
Sec.
367. Foreign corporations.
368. Definitions relating to corporate reorganizations.
-End-
-CITE-
26 USC Sec. 367 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART III - CORPORATE ORGANIZATIONS AND REORGANIZATIONS
Subpart D - Special Rule; Definitions
-HEAD-
Sec. 367. Foreign corporations
-STATUTE-
(a) Transfers of property from the United States
(1) General rule
If, in connection with any exchange described in section 332,
351, 354, 356, or 361, a United States person transfers property
to a foreign corporation, such foreign corporation shall not, for
purposes of determining the extent to which gain shall be
recognized on such transfer, be considered to be a corporation.
(2) Exception for certain stock or securities
Except to the extent provided in regulations, paragraph (1)
shall not apply to the transfer of stock or securities of a
foreign corporation which is a party to the exchange or a party
to the reorganization.
(3) Exception for transfers of certain property used in the
active conduct of a trade or business
(A) In general
Except as provided in regulations prescribed by the
Secretary, paragraph (1) shall not apply to any property
transferred to a foreign corporation for use by such foreign
corporation in the active conduct of a trade or business
outside of the United States.
(B) Paragraph not to apply to certain property
Except as provided in regulations prescribed by the
Secretary, subparagraph (A) shall not apply to any -
(i) property described in paragraph (1) or (3) of section
1221(a) (relating to inventory and copyrights, etc.),
(ii) installment obligations, accounts receivable, or
similar property,
(iii) foreign currency or other property denominated in
foreign currency,
(iv) intangible property (within the meaning of section
936(h)(3)(B)), or
(v) property with respect to which the transferor is a
lessor at the time of the transfer, except that this clause
shall not apply if the transferee was the lessee.
(C) Transfer of foreign branch with previously deducted losses
Except as provided in regulations prescribed by the
Secretary, subparagraph (A) shall not apply to gain realized on
the transfer of the assets of a foreign branch of a United
States person to a foreign corporation in an exchange described
in paragraph (1) to the extent that -
(i) the sum of losses -
(I) which were incurred by the foreign branch before the
transfer, and
(II) with respect to which a deduction was allowed to the
taxpayer, exceeds
(ii) the sum of -
(I) any taxable income of such branch for a taxable year
after the taxable year in which the loss was incurred and
through the close of the taxable year of the transfer, and
(II) the amount which is recognized under section
904(f)(3) on account of the transfer.
Any gain recognized by reason of the preceding sentence shall
be treated for purposes of this chapter as income from sources
outside the United States having the same character as such
losses had.
(4) Special rule for transfer of partnership interests
Except as provided in regulations prescribed by the Secretary,
a transfer by a United States person of an interest in a
partnership to a foreign corporation in an exchange described in
paragraph (1) shall, for purposes of this subsection, be treated
as a transfer to such corporation of such person's pro rata share
of the assets of the partnership.
(5) Paragraphs (2) and (3) not to apply to certain section 361
transactions
Paragraphs (2) and (3) shall not apply in the case of an
exchange described in subsection (a) or (b) of section 361.
Subject to such basis adjustments and such other conditions as
shall be provided in regulations, the preceding sentence shall
not apply if the transferor corporation is controlled (within the
meaning of section 368(c)) by 5 or fewer domestic corporations.
For purposes of the preceding sentence, all members of the same
affiliated group (within the meaning of section 1504) shall be
treated as 1 corporation.
(6) Secretary may exempt certain transactions from application of
this subsection
Paragraph (1) shall not apply to the transfer of any property
which the Secretary, in order to carry out the purposes of this
subsection, designates by regulation.
(b) Other transfers
(1) Effect of section to be determined under regulations
In the case of any exchange described in section 332, 351, 354,
355, 356, or 361 in connection with which there is no transfer of
property described in subsection (a)(1), a foreign corporation
shall be considered to be a corporation except to the extent
provided in regulations prescribed by the Secretary which are
necessary or appropriate to prevent the avoidance of Federal
income taxes.
(2) Regulations relating to sale or exchange of stock in foreign
corporations
The regulations prescribed pursuant to paragraph (1) shall
include (but shall not be limited to) regulations dealing with
the sale or exchange of stock or securities in a foreign
corporation by a United States person, including regulations
providing -
(A) the circumstances under which -
(i) gain shall be recognized currently, or amounts included
in gross income currently as a dividend, or both, or
(ii) gain or other amounts may be deferred for inclusion in
the gross income of a shareholder (or his successor in
interest) at a later date, and
(B) the extent to which adjustments shall be made to earnings
and profits, basis of stock or securities, and basis of assets.
(c) Transactions to be treated as exchanges
(1) Section 355 distribution
For purposes of this section, any distribution described in
section 355 (or so much of section 356 as relates to section 355)
shall be treated as an exchange whether or not it is an exchange.
(2) Contribution of capital to controlled corporations
For purposes of this chapter, any transfer of property to a
foreign corporation as a contribution to the capital of such
corporation by one or more persons who, immediately after the
transfer, own (within the meaning of section 318) stock
possessing at least 80 percent of the total combined voting power
of all classes of stock of such corporation entitled to vote
shall be treated as an exchange of such property for stock of the
foreign corporation equal in value to the fair market value of
the property transferred.
(d) Special rules relating to transfers of intangibles
(1) In general
Except as provided in regulations prescribed by the Secretary,
if a United States person transfers any intangible property
(within the meaning of section 936(h)(3)(B)) to a foreign
corporation in an exchange described in section 351 or 361 -
(A) subsection (a) shall not apply to the transfer of such
property, and
(B) the provisions of this subsection shall apply to such
transfer.
(2) Transfer of intangibles treated as transfer pursuant to sale
of contingent payments
(A) In general
If paragraph (1) applies to any transfer, the United States
person transferring such property shall be treated as -
(i) having sold such property in exchange for payments
which are contingent upon the productivity, use, or
disposition of such property, and
(ii) receiving amounts which reasonably reflect the amounts
which would have been received -
(I) annually in the form of such payments over the useful
life of such property, or
(II) in the case of a disposition following such transfer
(whether direct or indirect), at the time of the
disposition.
The amounts taken into account under clause (ii) shall be
commensurate with the income attributable to the intangible.
(B) Effect on earnings and profits
For purposes of this chapter, the earnings and profits of a
foreign corporation to which the intangible property was
transferred shall be reduced by the amount required to be
included in the income of the transferor of the intangible
property under subparagraph (A)(ii).
(C) Amounts received treated as ordinary income
For purposes of this chapter, any amount included in gross
income by reason of this subsection shall be treated as
ordinary income.
(3) Regulations relating to transfers of intangibles to
partnerships
The Secretary may provide by regulations that the rules of
paragraph (2) also apply to the transfer of intangible property
by a United States person to a partnership in circumstances
consistent with the purposes of this subsection.
(e) Treatment of distributions described in section 355 or
liquidations under section 332
(1) Distributions described in section 355
In the case of any distribution described in section 355 (or so
much of section 356 as relates to section 355) by a domestic
corporation to a person who is not a United States person, to the
extent provided in regulations, gain shall be recognized under
principles similar to the principles of this section.
(2) Liquidations under section 332
In the case of any liquidation to which section 332 applies,
except as provided in regulations, subsections (a) and (b)(1) of
section 337 shall not apply where the 80-percent distributee (as
defined in section 337(c)) is a foreign corporation.
(f) Other transfers
To the extent provided in regulations, if a United States person
transfers property to a foreign corporation as paid-in surplus or
as a contribution to capital (in a transaction not otherwise
described in this section), such transfer shall be treated as a
sale or exchange for an amount equal to the fair market value of
the property transferred, and the transferor shall recognize as
gain the excess of -
(1) the fair market value of the property so transferred, over
(2) the adjusted basis (for purposes of determining gain) of
such property in the hands of the transferor.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 119; Pub. L. 91-681, Sec. 1(a),
Jan. 12, 1971, 84 Stat. 2065; Pub. L. 94-455, title X, Sec.
1042(a), Oct. 4, 1976, 90 Stat. 1634; Pub. L. 97-248, title II,
Sec. 213(d), Sept. 3, 1982, 96 Stat. 465; Pub. L. 98-369, div. A,
title I, Sec. 131(a)-(c), July 18, 1984, 98 Stat. 662-664; Pub. L.
99-514, title VI, Sec. 631(d)(1), title XII, Sec. 1231(e)(2), title
XVIII, Sec. 1810(g)(1), (4), Oct. 22, 1986, 100 Stat. 2272, 2563,
2828, 2829; Pub. L. 100-647, title I, Sec. 1006(e)(13)(A), Nov. 10,
1988, 102 Stat. 3402; Pub. L. 101-508, title XI, Sec. 11702(a)(1),
Nov. 5, 1990, 104 Stat. 1388-514; Pub. L. 105-34, title XI, Sec.
1131(b)(2), (4), (5)(A), Aug. 5, 1997, 111 Stat. 979, 980; Pub. L.
106-170, title V, Sec. 532(c)(1)(C), Dec. 17, 1999, 113 Stat.
1930.)
-COD-
CODIFICATION
Another section 1131(b) of Pub. L. 105-34 enacted section 684 of
this title.
-MISC1-
AMENDMENTS
1999 - Subsec. (a)(3)(B)(i). Pub. L. 106-170 substituted "section
1221(a)" for "section 1221".
1997 - Subsec. (d)(2)(C). Pub. L. 105-34, Sec. 1131(b)(4),
amended heading and text of subpar. (C) generally. Prior to
amendment, text read as follows: "For purposes of this chapter, any
amount included in gross income by reason of this subsection shall
be treated as ordinary income from sources within the United
States."
Subsec. (d)(3). Pub. L. 105-34, Sec. 1131(b)(5)(A), added par.
(3).
Subsec. (f). Pub. L. 105-34, Sec. 1131(b)(2), added subsec. (f).
1990 - Subsec. (a)(5). Pub. L. 101-508 substituted "subsection
(a) or (b) of section 361" for "section 361".
1988 - Subsec. (a)(5), (6). Pub. L. 100-647 added par. (5) and
redesignated former par. (5) as (6).
1986 - Subsec. (a)(1). Pub. L. 99-514, Sec. 1810(g)(4)(A), struck
out "355," after "354,".
Subsec. (d)(2)(A). Pub. L. 99-514, Sec. 1231(e)(2), inserted at
end "The amounts taken into account under clause (ii) shall be
commensurate with the income attributable to the intangible."
Subsec. (e). Pub. L. 99-514, Sec. 631(d)(1), amended subsec. (e)
generally. Prior to amendment, subsec. (e), treatment of
distributions described in section 336 or 355, read as follows: "In
the case of any distribution described in section 336 or 355 (or so
much of section 356 as relates to section 355) by a domestic
corporation which is made to a person who is not a United States
person, to the extent provided in regulations, gain shall be
recognized under principles similar to the principles of this
section."
Subsec. (f). Pub. L. 99-514, Sec. 1810(g)(1), struck out subsec.
(f) which related to transitional rules in the case of any
exchanges beginning before Jan. 1, 1978.
Pub. L. 99-514, Sec. 1810(g)(4)(B), in heading substituted
"distributions described in section 336 or 355" for "liquidations
under section 336", and in text inserted "or 355 (or so much of
section 356 as relates to section 355)".
1984 - Subsec. (a). Pub. L. 98-369, Sec. 131(a), amended subsec.
(a) generally, revising provisions of pars. (1) and (2), and adding
pars. (3) to (5).
Subsec. (d). Pub. L. 98-369, Sec. 131(b), amended subsec. (d)
generally, substituting provision providing special rules relating
to transfers of intangibles for provision providing special rules
relating to transfers of intangibles by possession corporation.
Subsecs. (e), (f). Pub. L. 98-369, Sec. 131(c), added subsec. (e)
and redesignated former subsec. (e) as (f).
1982 - Subsecs. (d), (e). Pub. L. 97-248 added subsec. (d) and
redesignated former subsec. (d) as (e).
1976 - Pub. L. 94-455, among other changes, inserted provisions
permitting nonrecognition of gain if a request for a ruling that
tax avoidance is not present is filed within 183 days after
beginning of an exchange, relating to an organization,
reorganization, and liquidation of a foreign corporation, in the
case of outbound transfers, however, for all other transfers,
regulations are to provide the extent that earnings are to be taken
into account as dividends and provisions relating to Tax Court
review of the tax avoidance rulings.
1971 - Subsec. (a). Pub. L. 91-681 designated existing provisions
as subsec. (a), and, as so designated, inserted provisions relating
to instances of an exchange, described in subsec. (b). Provisions
relating to distributions described in section 355 (or so much of
section 356 as relates to section 355) were stricken and were
transferred to subsec. (c).
Subsec. (b). Pub. L. 91-681 added subsec. (b).
Subsec. (c). Pub. L. 91-681 designated as subsec. (c) provisions
relating to distribution described in section 355 (or so much of
section 356 as relates to section 355).
Subsec. (d). Pub. L. 91-681 added subsec. (d).
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-170 applicable to any instrument held,
acquired, or entered into, any transaction entered into, and
supplies held or acquired on or after Dec. 17, 1999, see section
532(d) of Pub. L. 106-170, set out as a note under section 170 of
this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1131(d) of Pub. L. 105-34 provided that: "The amendments
made by this section [enacting section 684 of this title, amending
this section and sections 721, 814, 1035, and 6422 of this title,
and repealing sections 1057, 1491, 1492, and 1494 of this title]
shall take effect on the date of the enactment of this Act [Aug. 5,
1997]."
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by Pub. L. 101-508 effective as if included in the
provision of the Technical and Miscellaneous Revenue Act of 1988,
Pub. L. 100-647, to which such amendment relates, see section
11702(j) of Pub. L. 101-508, set out as a note under section 59 of
this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1006(e)(13)(B) of Pub. L. 100-647 provided that: "The
amendment made by subparagraph (A) [amending this section] shall
apply to exchanges on or after June 21, 1988, except that such
amendment shall not apply to any exchange pursuant to any
reorganization for which a plan of reorganization was adopted
before June 21, 1988."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 631(d)(1) of Pub. L. 99-514 applicable to
any distribution in complete liquidation, and any sale or exchange,
made by a corporation after July 31, 1986, unless such corporation
is completely liquidated before Jan. 1, 1987, any transaction
described in section 338 of this title for which the acquisition
date occurs after Dec. 31, 1986, and any distribution, not in
complete liquidation, made after Dec. 31, 1986, with exceptions and
special and transitional rules, see section 633 of Pub. L. 99-514,
set out as an Effective Date note under section 336 of this title.
Amendment by section 1231(e)(2) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, but only with respect
to transfers after Nov. 16, 1985, or licenses granted after such
date, or before such date with respect to property not in existence
or owned by taxpayer on such date, except that for purposes of
section 936(h)(5)(C) of this title, such amendment applicable to
taxable years beginning after Dec. 31, 1986, without regard to when
the transfer or license was made, see section 1231(g)(2) of Pub. L.
99-514, set out as a note under section 936 of this title.
Amendment by section 1810(g)(1), (4) of Pub. L. 99-514 effective,
except as otherwise provided, as if included in the provisions of
the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such
amendment relates, see section 1881 of Pub. L. 99-514, set out as a
note under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 131(g) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - The amendments made by this section [enacting
section 6038B of this title, amending this section and sections
1492, 1494, 6501, and 7482 of this title, and repealing section
7477 of this title] shall apply to transfers or exchanges after
December 31, 1984, in taxable years ending after such date.
"(2) Special rule for certain transfers of intangibles. -
"(A) In general. - If, after June 6, 1984, and before January
1, 1985, a United States person transfers any intangible property
(within the meaning of section 936(h)(3)(B) of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954]) to a foreign
corporation or in a transfer described in section 1491, such
transfer shall be treated for purposes of sections 367(a),
1492(2), and 1494(b) of such Code as pursuant to a plan having as
1 of its principal purposes the avoidance of Federal income tax.
"(B) Waiver. - Subject to such terms and conditions as the
Secretary of the Treasury or his delegate may prescribe, the
Secretary may waive the application of subparagraph (A) with
respect to any transfer.
"(3) Ruling request before march 1, 1984. - The amendments made
by this section (and the provisions of paragraph (2) of this
subsection) shall not apply to any transfer or exchange of property
described in a request filed before March 1, 1984, under section
367(a), 1492(2), or 1494(b) of the Internal Revenue Code of 1986
(as in effect before such amendments)."
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-248 applicable to taxable years ending
after Aug. 14, 1982, see section 213(e)(3) of Pub. L. 97-248, set
out as a note under section 936 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1042(e) of Pub. L. 94-455, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) The amendments made by this section (other than by
subsection (d)) [amending this section and sections 751 and 1248 of
this title] shall apply to transfers beginning after October 9,
1975, and to sales, exchanges, and distributions taking place after
such date. The amendments made by subsection (d) [enacting section
7477 of this title and amending sections 7476 and 7482 of this
title] shall apply with respect to pleadings filed with the Tax
Court after the date of the enactment of this Act [Oct. 4, 1976]
but only with respect to transfers beginning after October 9, 1975.
"(2) In the case of any exchange described in section 367 of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as in effect
on December 31, 1974) in any taxable year beginning after December
31, 1962, and before the date of the enactment of this Act [Oct. 4,
1976], which does not involve the transfer of property to or from a
United States person, a taxpayer shall have for purposes of such
section until 183 days after the date of the enactment of this Act
[Oct. 4, 1976] to file a request with the Secretary of the Treasury
or his delegate seeking to establish to the satisfaction of the
Secretary of the Treasury or his delegate that such exchange was
not in pursuance of a plan having as one of its principal purposes
the avoidance of Federal income taxes and that for purposes of such
section a foreign corporation is to be treated as a foreign
corporation."
EFFECTIVE DATE OF 1971 AMENDMENT
Section 1(c) of Pub. L. 91-681, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by this section [amending this section and section
1492 of this title] shall apply to transfers made after December
31, 1967; except that sections 367(d) and 1492 of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954] (as amended by this
section) shall apply only with respect to transfers made after
December 31, 1970."
APPLICABILITY OF SUBSECTION (E)(2)
Section 1006(e)(13)(C) of Pub. L. 100-647 provided that: "Section
367(e)(2) of the 1986 Code (as amended by the Reform Act [Pub. L.
99-514]) shall not apply in the case of any corporation completely
liquidated before June 10, 1987, into a corporation organized in a
country which has an income tax treaty with the United States."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 721, 814, 936, 943, 953
of this title.
-End-
-CITE-
26 USC Sec. 368 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART III - CORPORATE ORGANIZATIONS AND REORGANIZATIONS
Subpart D - Special Rule; Definitions
-HEAD-
Sec. 368. Definitions relating to corporate reorganizations
-STATUTE-
(a) Reorganization
(1) In general
For purposes of parts I and II and this part, the term
"reorganization" means -
(A) a statutory merger or consolidation;
(B) the acquisition by one corporation, in exchange solely
for all or a part of its voting stock (or in exchange solely
for all or a part of the voting stock of a corporation which is
in control of the acquiring corporation), of stock of another
corporation if, immediately after the acquisition, the
acquiring corporation has control of such other corporation
(whether or not such acquiring corporation had control
immediately before the acquisition);
(C) the acquisition by one corporation, in exchange solely
for all or a part of its voting stock (or in exchange solely
for all or a part of the voting stock of a corporation which is
in control of the acquiring corporation), of substantially all
of the properties of another corporation, but in determining
whether the exchange is solely for stock the assumption by the
acquiring corporation of a liability of the other shall be
disregarded;
(D) a transfer by a corporation of all or a part of its
assets to another corporation if immediately after the transfer
the transferor, or one or more of its shareholders (including
persons who were shareholders immediately before the transfer),
or any combination thereof, is in control of the corporation to
which the assets are transferred; but only if, in pursuance of
the plan, stock or securities of the corporation to which the
assets are transferred are distributed in a transaction which
qualifies under section 354, 355, or 356;
(E) a recapitalization;
(F) a mere change in identity, form, or place of organization
of one corporation, however effected; or
(G) a transfer by a corporation of all or part of its assets
to another corporation in a title 11 or similar case; but only
if, in pursuance of the plan, stock or securities of the
corporation to which the assets are transferred are distributed
in a transaction which qualifies under section 354, 355, or
356.
(2) Special rules relating to paragraph (1)
(A) Reorganizations described in both paragraph (1)(C) and
paragraph (1)(D)
If a transaction is described in both paragraph (1)(C) and
paragraph (1)(D), then, for purposes of this subchapter (other
than for purposes of subparagraph (C)), such transaction shall
be treated as described only in paragraph (1)(D).
(B) Additional consideration in certain paragraph (1)(C) cases
If -
(i) one corporation acquires substantially all of the
properties of another corporation,
(ii) the acquisition would qualify under paragraph (1)(C)
but for the fact that the acquiring corporation exchanges
money or other property in addition to voting stock, and
(iii) the acquiring corporation acquires, solely for voting
stock described in paragraph (1)(C), property of the other
corporation having a fair market value which is at least 80
percent of the fair market value of all of the property of
the other corporation,
then such acquisition shall (subject to subparagraph (A) of
this paragraph) be treated as qualifying under paragraph
(1)(C). Solely for the purpose of determining whether clause
(iii) of the preceding sentence applies, the amount of any
liability assumed by the acquiring corporation shall be treated
as money paid for the property.
(C) Transfers of assets or stock to subsidiaries in certain
paragraph (1)(A), (1)(B), (1)(C), and (1)(G) cases
A transaction otherwise qualifying under paragraph (1)(A),
(1)(B), or (1)(C) shall not be disqualified by reason of the
fact that part or all of the assets or stock which were
acquired in the transaction are transferred to a corporation
controlled by the corporation acquiring such assets or stock. A
similar rule shall apply to a transaction otherwise qualifying
under paragraph (1)(G) where the requirements of subparagraphs
(A) and (B) of section 354(b)(1) are met with respect to the
acquisition of the assets.
(D) Use of stock of controlling corporation in paragraph (1)(A)
and (1)(G) cases
The acquisition by one corporation, in exchange for stock of
a corporation (referred to in this subparagraph as "controlling
corporation") which is in control of the acquiring corporation,
of substantially all of the properties of another corporation
shall not disqualify a transaction under paragraph (1)(A) or
(1)(G) if -
(i) no stock of the acquiring corporation is used in the
transaction, and
(ii) in the case of a transaction under paragraph (1)(A),
such transaction would have qualified under paragraph (1)(A)
had the merger been into the controlling corporation.
(E) Statutory merger using voting stock of corporation
controlling merged corporation
A transaction otherwise qualifying under paragraph (1)(A)
shall not be disqualified by reason of the fact that stock of a
corporation (referred to in this subparagraph as the
"controlling corporation") which before the merger was in
control of the merged corporation is used in the transaction,
if -
(i) after the transaction, the corporation surviving the
merger holds substantially all of its properties and of the
properties of the merged corporation (other than stock of the
controlling corporation distributed in the transaction); and
(ii) in the transaction, former shareholders of the
surviving corporation exchanged, for an amount of voting
stock of the controlling corporation, an amount of stock in
the surviving corporation which constitutes control of such
corporation.
(F) Certain transactions involving 2 or more investment
companies
(i) If immediately before a transaction described in
paragraph (1) (other than subparagraph (E) thereof), 2 or
more parties to the transaction were investment companies,
then the transaction shall not be considered to be a
reorganization with respect to any such investment company
(and its shareholders and security holders) unless it was a
regulated investment company, a real estate investment trust,
or a corporation which meets the requirements of clause (ii).
(ii) A corporation meets the requirements of this clause if
not more than 25 percent of the value of its total assets is
invested in the stock and securities of any one issuer, and
not more than 50 percent of the value of its total assets is
invested in the stock and securities of 5 or fewer issuers.
For purposes of this clause, all members of a controlled
group of corporations (within the meaning of section 1563(a))
shall be treated as one issuer. For purposes of this clause,
a person holding stock in a regulated investment company, a
real estate investment trust, or an investment company which
meets the requirements of this clause shall, except as
provided in regulations, be treated as holding its
proportionate share of the assets held by such company or
trust.
(iii) For purposes of this subparagraph the term
"investment company" means a regulated investment company, a
real estate investment trust, or a corporation 50 percent or
more of the value of whose total assets are stock and
securities and 80 percent or more of the value of whose total
assets are assets held for investment. In making the
50-percent and 80-percent determinations under the preceding
sentence, stock and securities in any subsidiary corporation
shall be disregarded and the parent corporation shall be
deemed to own its ratable share of the subsidiary's assets,
and a corporation shall be considered a subsidiary if the
parent owns 50 percent or more of the combined voting power
of all classes of stock entitled to vote, or 50 percent or
more of the total value of shares of all classes of stock
outstanding.
(iv) For purposes of this subparagraph, in determining
total assets there shall be excluded cash and cash items
(including receivables). Government securities, and, under
regulations prescribed by the Secretary, assets acquired
(through incurring indebtedness or otherwise) for purposes of
meeting the requirements of clause (ii) or ceasing to be an
investment company.
(v) This subparagraph shall not apply if the stock of each
investment company is owned substantially by the same persons
in the same proportions.
(vi) If an investment company which does not meet the
requirements of clause (ii) acquires assets of another
corporation, clause (i) shall be applied to such investment
company and its shareholders and security holders as though
its assets had been acquired by such other corporation. If
such investment company acquires stock of another corporation
in a reorganization described in section 368(a)(1)(B), clause
(i) shall be applied to the shareholders of such investment
company as though they had exchanged with such other
corporation all of their stock in such company for stock
having a fair market value equal to the fair market value of
their stock of such investment company immediately after the
exchange. For purposes of section 1001, the deemed
acquisition or exchange referred to in the two preceding
sentences shall be treated as a sale or exchange of property
by the corporation and by the shareholders and security
holders to which clause (i) is applied.
(vii) For purposes of clauses (ii) and (iii), the term
"securities" includes obligations of State and local
governments, commodity futures contracts, shares of regulated
investment companies and real estate investment trusts, and
other investments constituting a security within the meaning
of the Investment Company Act of 1940 (15 U.S.C.
80a-2(36)).(!1)
[(viii) Repealed. Pub. L. 98-369, div. A, title I, Sec.
174(b)(5)(D), July 18, 1984, 98 Stat. 707]
(G) Distribution requirement for paragraph (1)(C)
(i) In general
A transaction shall fail to meet the requirements of
paragraph (1)(C) unless the acquired corporation distributes
the stock, securities, and other properties it receives, as
well as its other properties, in pursuance of the plan of
reorganization. For purposes of the preceding sentence, if
the acquired corporation is liquidated pursuant to the plan
of reorganization, any distribution to its creditors in
connection with such liquidation shall be treated as pursuant
to the plan of reorganization.
(ii) Exception
The Secretary may waive the application of clause (i) to
any transaction subject to any conditions the Secretary may
prescribe.
(H) Special rules for determining whether certain transactions
are qualified under paragraph (1)(D)
For purposes of determining whether a transaction qualifies
under paragraph (1)(D) -
(i) in the case of a transaction with respect to which the
requirements of subparagraphs (A) and (B) of section
354(b)(1) are met, the term "control" has the meaning given
such term by section 304(c), and
(ii) in the case of a transaction with respect to which the
requirements of section 355 (or so much of section 356 as
relates to section 355) are met, the fact that the
shareholders of the distributing corporation dispose of part
or all of the distributed stock, or the fact that the
corporation whose stock was distributed issues additional
stock, shall not be taken into account.
(3) Additional rules relating to title 11 and similar cases
(A) Title 11 or similar case defined
For purposes of this part, the term "title 11 or similar
case" means -
(i) a case under title 11 of the United States Code, or
(ii) a receivership, foreclosure, or similar proceeding in
a Federal or State court.
(B) Transfer of assets in a title 11 or similar case
In applying paragraph (1)(G), a transfer of the assets of a
corporation shall be treated as made in a title 11 or similar
case if and only if -
(i) any party to the reorganization is under the
jurisdiction of the court in such case, and
(ii) the transfer is pursuant to a plan of reorganization
approved by the court.
(C) Reorganizations qualifying under paragraph (1)(G) and
another provision
If a transaction would (but for this subparagraph) qualify
both -
(i) under subparagraph (G) of paragraph (1), and
(ii) under any other subparagraph of paragraph (1) or under
section 332 or 351,
then, for purposes of this subchapter (other than section
357(c)(1)), such transaction shall be treated as qualifying
only under subparagraph (G) of paragraph (1).
(D) Agency receivership proceedings which involve financial
institutions
For purposes of subparagraphs (A) and (B), in the case of a
receivership, foreclosure, or similar proceeding before a
Federal or State agency involving a financial institution
referred to in section 581 or 591, the agency shall be treated
as a court.
(E) Application of paragraph (2)(E)(ii)
In the case of a title 11 or similar case, the requirement of
clause (ii) of paragraph (2)(E) shall be treated as met if -
(i) no former shareholder of the surviving corporation
received any consideration for his stock, and
(ii) the former creditors of the surviving corporation
exchanged, for an amount of voting stock of the controlling
corporation, debt of the surviving corporation which had a
fair market value equal to 80 percent or more of the total
fair market value of the debt of the surviving corporation.
(b) Party to a reorganization
For purposes of this part, the term "a party to a reorganization"
includes -
(1) a corporation resulting from a reorganization, and
(2) both corporations, in the case of a reorganization
resulting from the acquisition by one corporation of stock or
properties of another.
In the case of a reorganization qualifying under paragraph (1)(B)
or (1)(C) of subsection (a), if the stock exchanged for the stock
or properties is stock of a corporation which is in control of the
acquiring corporation, the term "a party to a reorganization"
includes the corporation so controlling the acquiring corporation.
In the case of a reorganization qualifying under paragraph (1)(A),
(1)(B), or (1)(C), or (1)(G) of subsection (a) by reason of
paragraph (2)(C) of subsection (a), the term "a party to a
reorganization" includes the corporation controlling the
corporation to which the acquired assets or stock are transferred.
In the case of a reorganization qualifying under paragraph (1)(A)
or (1)(G) of subsection (a) by reason of paragraph (2)(D) of that
subsection, the term "a party to a reorganization" includes the
controlling corporation referred to in such paragraph (2)(D). In
the case of a reorganization qualifying under subsection (a)(1)(A)
by reason of subsection (a)(2)(E), the term "party to a
reorganization" includes the controlling corporation referred to in
subsection (a)(2)(E).
(c) Control defined
For purposes of part I (other than section 304), part II, this
part, and part V, the term "control" means the ownership of stock
possessing at least 80 percent of the total combined voting power
of all classes of stock entitled to vote and at least 80 percent of
the total number of shares of all other classes of stock of the
corporation.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 120; Pub. L. 88-272, title II,
Sec. 218(a), (b), Feb. 26, 1964, 78 Stat. 57; Pub. L. 90-621, Sec.
1(a), (b), Oct. 22, 1968, 82 Stat. 1310, 1311; Pub. L. 91-693, Sec.
1(a), (b), Jan. 12, 1971, 84 Stat. 2077; Pub. L. 94-455, title
VIII, Sec. 806(f)(1), title XXI, Sec. 2131(a), Oct. 4, 1976, 90
Stat. 1605, 1922; Pub. L. 95-600, title VII, Sec. 701(j)(1), Nov.
6, 1978, 92 Stat. 2905; Pub. L. 96-589, Sec. 4(a)-(d), (h)(3), (4),
Dec. 24, 1980, 94 Stat. 3401-3403, 3405; Pub. L. 97-34, title II,
Sec. 241, Aug. 13, 1981, 95 Stat. 254; Pub. L. 97-248, title II,
Sec. 225(a), Sept. 3, 1982, 96 Stat. 490; Pub. L. 97-448, title
III, Sec. 304(b), (c), Jan. 12, 1983, 96 Stat. 2398; Pub. L.
98-369, div. A, title I, Secs. 63(a), 64(a), 174(b)(5)(D), July 18,
1984, 98 Stat. 583, 584, 707; Pub. L. 99-514, title VI, Sec.
621(e)(1), title IX, Sec. 904(a), title XVIII, Secs. 1804(g)(2),
(h), 1879(l)(1), Oct. 22, 1986, 100 Stat. 2266, 2385, 2806, 2909;
Pub. L. 100-647, title I, Sec. 1018(q)(5), title IV, Sec.
4012(b)(1)(A), Nov. 10, 1988, 102 Stat. 3586, 3656; Pub. L. 101-73,
title XIV, Sec. 1401(a)(1), (b)(1), Aug. 9, 1989, 103 Stat. 548,
549; Pub. L. 105-34, title X, Sec. 1012(c)(2), Aug. 5, 1997, 111
Stat. 917; Pub. L. 105-206, title VI, Sec. 6010(c)(3)(B), July 22,
1998, 112 Stat. 813; Pub. L. 105-277, div. J, title IV, Sec.
4003(f)(2), Oct. 21, 1998, 112 Stat. 2681-910; Pub. L. 106-36,
title III, Sec. 3001(a)(3), June 25, 1999, 113 Stat. 182.)
-REFTEXT-
REFERENCES IN TEXT
The Investment Company Act of 1940, referred to in subsec.
(a)(2)(F)(vii), is title I of act Aug. 22, 1940, ch. 686, 54 Stat.
789, as amended, which is classified generally to subchapter I
(Sec. 80a-1 et seq.) of chapter 2D of Title 15, Commerce and Trade.
For complete classification of this Act to the Code, see section
80a-51 of Title 15 and Tables.
-MISC1-
AMENDMENTS
1999 - Subsec. (a)(1)(C). Pub. L. 106-36, Sec. 3001(a)(3)(A),
struck out ", or the fact that property acquired is subject to a
liability," before "shall be disregarded".
Subsec. (a)(2)(B). Pub. L. 106-36, Sec. 3001(a)(3)(B), which
directed amendment of concluding provisions by striking out ", and
the amount of any liability to which any property acquired from the
acquiring corporation is subject,", was executed by striking out ",
and the amount of any liability to which any property acquired by
the acquiring corporation is subject," after "acquiring
corporation", to reflect the probable intent of Congress.
1998 - Subsec. (a)(2)(H)(ii). Pub. L. 105-277 inserted ", or the
fact that the corporation whose stock was distributed issues
additional stock," after "dispose of part or all of the distributed
stock".
Pub. L. 105-206 amended cl. (ii) generally. Prior to amendment,
cl. (ii) read as follows: "in the case of a transaction with
respect to which the requirements of section 355 are met, the
shareholders described in paragraph (1)(D) shall be treated as
having control of the corporation to which the assets are
transferred if such shareholders own (immediately after the
distribution) stock possessing -
"(I) more than 50 percent of the total combined voting power of
all classes of stock of such corporation entitled to vote, and
"(II) more than 50 percent of the total value of shares of all
classes of stock of such corporation."
1997 - Subsec. (a)(2)(H). Pub. L. 105-34 amended heading and text
of subpar. (H) generally. Prior to amendment, text read as follows:
"In the case of any transaction with respect to which the
requirements of subparagraphs (A) and (B) of section 354(b)(1) are
met, for purposes of determining whether such transaction qualifies
under subparagraph (D) of paragraph (1), the term 'control' has the
meaning given to such term by section 304(c)."
1989 - Subsec. (a)(3)(D). Pub. L. 101-73, Sec. 1401(b)(1),
repealed amendment made by Pub. L. 99-514, Sec. 904(a), see 1986
Amendment note below.
Pub. L. 101-73, Sec. 1401(a)(1), inserted "receivership" in
heading and amended text generally, changing the structure of the
subparagraph from one consisting of five clauses designated (i) to
(v) to one consisting of a single undesignated subparagraph.
1988 - Subsec. (a)(2)(F)(ii). Pub. L. 100-647, Sec. 1018(q)(5),
struck out "(other than stock in a regulated investment company, a
real estate investment trust, or an investment company which meets
the requirements of this clause (ii))" after "any one issuer" and
after "or fewer issuers" and inserted at end "For purposes of this
clause, a person holding stock in a regulated investment company, a
real estate investment trust, or an investment company which meets
the requirements of this clause shall, except as provided in
regulations, be treated as holding its proportionate share of the
assets held by such company or trust."
Subsec. (a)(3)(D)(iv), (v). Pub. L. 100-647, Sec. 4012(b)(1)(A),
amended subpar. (D), as in effect before the amendment made by
section 904(a) of Pub. L. 99-514, by adding cls. (iv) and (v).
1986 - Subsec. (a)(2)(A). Pub. L. 99-514, Sec. 1804(h)(3),
inserted "(other than for purposes of subparagraph (C))" after
"subchapter".
Subsec. (a)(2)(F)(ii). Pub. L. 99-514, Sec. 1879(l)(1), amended
cl. (ii) generally. Prior to amendment, cl. (ii) read as follows:
"A corporation meets the requirements of this clause if not more
than 25 percent of the value of its total assets is invested in the
stock and securities of any one issuer, and not more than 50
percent of the value of its total assets is invested in the stock
and securities of 5 or fewer issuers. For purposes of this clause,
all members of a controlled group of corporations (within the
meaning of section 1563(a)) shall be treated as one issuer."
Subsec. (a)(2)(G)(i). Pub. L. 99-514, Sec. 1804(g)(2), inserted
"For purposes of the preceding sentence, if the acquired
corporation is liquidated pursuant to the plan of reorganization,
any distribution to its creditors in connection with such
liquidation shall be treated as pursuant to the plan of
reorganization."
Subsec. (a)(2)(H). Pub. L. 99-514, Sec. 1804(h)(2), added subpar.
(H).
Subsec. (a)(3)(D). Pub. L. 99-514, Sec. 904(a), (c)(1), as
amended by Pub. L. 100-647, Sec. 4012(a)(1), which (applicable to
acquisitions after Dec. 31, 1989, in taxable years ending after
such date) directed amendment of subpar. (D) to read as follows:
"(D) Agency receivership proceedings which involve financial
institutions. - For purposes of subparagraphs (A) and (B), in the
case of a receivership, foreclosure, or similar proceeding before a
Federal or State agency involving a financial institution referred
to in section 581 or 591, the agency shall be treated as a court."
was repealed by Pub. L. 101-73, Sec. 1401(b)(1), (c)(4), eff. Oct.
22, 1986, and I.R.C. of 1986 applicable as if the amendments made
by such section had not been enacted.
Subsec. (c). Pub. L. 99-514, Sec. 1804(h)(1), in amending subsec.
(c) generally, struck out par. (1) designation and struck out par.
(2) defining term "control" as having meaning given to such term by
section 304(c) in case of any transaction with respect to which
requirements of subpars. (A) and (B) of section 354(b)(1) are met,
for purposes of determining whether such transaction is described
in subpar. (D) of subsec. (a)(1).
Pub. L. 99-514, Sec. 621(e)(1), repealed amendment by Pub. L.
94-455, Sec. 806(f)(1). See 1976 Amendment note below.
1984 - Subsec. (a)(2)(F)(viii). Pub. L. 98-369, Sec.
174(b)(5)(D), struck out cl. (viii) which provided that in applying
paragraph (3) of section 267(b) in respect of any transaction to
which this subparagraph applies, the reference to a personal
holding company in such paragraph (3) be treated as including a
reference to an investment company and the determination of whether
a corporation is an investment company be made as of the time
immediately before the transaction instead of with respect to the
taxable year referred to in such paragraph (3).
Subsec. (a)(2)(G). Pub. L. 98-369, Sec. 63(a), added subpar. (G).
Subsec. (c). Pub. L. 98-369, Sec. 64(a), designated existing
provisions as par. (1) and added par. (2).
1983 - Subsec. (a)(2)(C). Pub. L. 97-448, Sec. 304(b), struck out
"or stock" after "acquisition of the assets".
Subsec. (a)(3)(B)(i). Pub. L. 97-448, Sec. 304(c), substituted
"any party to the reorganization" for "such corporation".
1982 - Subsec. (a)(1)(F). Pub. L. 97-248 inserted "of one
corporation" after "place of organization".
1981 - Subsec. (a)(3)(D). Pub. L. 97-34 substituted "Agency
proceedings" for "Agency receivership proceedings" in heading,
incorporated existing provisions in text designated cl. (i),
inserted in cl. (i)(II) definition for term "title 11 or similar
case", and added cls. (ii) and (iii).
1980 - Subsec. (a)(1)(G). Pub. L. 96-589, Sec. 4(a), (h)(3),
added subpar. (G).
Subsec. (a)(2)(C). Pub. L. 96-589, Sec. 4(c), inserted provision
that a similar rule would apply to a transaction otherwise
qualifying under par. (1)(G), where the requirements of subpars.
(A) and (B) of section 354(b)(1) are met with respect to the
acquisition of the assets or stock.
Subsec. (a)(2)(D). Pub. L. 96-589, Sec. 4(d), among other
changes, inserted reference to par. (1)(G).
Subsec. (a)(3). Pub. L. 96-589, Sec. 4(b), added par. (3).
Subsec. (b). Pub. L. 96-589, Sec. 4(h)(4), substituted "paragraph
(1)(A), (1)(B), (1)(C), or (1)(G) of subsection (a) by reason of
paragraph (2)(C)" and "paragraph (1)(A) or (1)(G) of subsection (a)
by reason of paragraph (2)(D)" for "paragraph (1)(A), (1)(B), or
(1)(C) of subsection (a) by reason of paragraph (2)(C)" and
"paragraph (1)(A) of subsection (a) by reason of paragraph (2)(D)",
respectively.
1978 - Subsec. (a)(2)(F). Pub. L. 95-600 substituted in cl.
(iii), first sentence, "50 percent or more" and "80 percent or
more" for "more than 50 percent" and "more than 80 percent";
substituted in cl. (vi), first sentence, "does not meet the
requirements" for "is not diversified within the meaning"; struck
from cl. (vi), second sentence, "(hereafter referred to as the
('actual acquisition')" after "section 368(a)(1)(B)" and "and
security holders" after "the shareholders" and substituted "stock
in such company for stock having a fair market value equal to the
fair market value of their stock of such investment company
immediately after the exchange" for "stock in such investment
company for a percentage of the value of the total outstanding
stock of the other corporation equal to the percentage of the value
of the total outstanding stock of such investment company which
such shareholders own immediately after the actual acquisition";
and added cls. (vii) and (viii).
1976 - Subsec. (a)(2)(F). Pub. L. 94-455, Sec. 2131(a), added
subpar. (F).
Subsec. (c). Pub. L. 94-455, Sec. 806(f)(1), which substituted
"this part, and Part V," for "and this part," was repealed by Pub.
L. 99-514, Sec. 621(e)(1). See Effective Date of 1986 and 1976
Amendment notes below.
1971 - Subsec. (a)(2)(E). Pub. L. 91-693, Sec. 1(a), added
subpar. (E).
Subsec. (b). Pub. L. 91-693, Sec. 1(b), defined "party to a
reorganization" in the case of a reorganization qualifying under
subsection (a)(1)(A) by reason of subsection (a)(2)(E).
1968 - Subsec. (a)(2)(D). Pub. L. 90-621, Sec. 1(a), added
subpar. (D).
Subsec. (b). Pub. L. 90-621, Sec. 1(b), inserted reference to the
inclusion of the controlling corporation in term "a party to a
reorganization" in reorganizations qualifying under paragraph
(1)(A) of subsection (a) by reason of paragraph (2)(D) of
subsection (a).
1964 - Subsec. (a). Pub. L. 88-272, Sec. 218(a), (b)(1), inserted
"(or in exchange solely for all or a part of the voting stock of a
corporation which is in control of the acquiring corporation)" in
par. (1)(B), and in par. (2)(C), inserted references to par.
(1)(B), and substituted "assets or stock" for "assets" wherever
appearing.
Subsec. (b). Pub. L. 88-272, Sec. 218(b)(2), inserted references
to par. (1)(B) wherever appearing.
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-36 applicable to transfers after Oct.
18, 1998, see section 3001(e) of Pub. L. 106-36, set out as a note
under section 351 of this title.
EFFECTIVE DATE OF 1998 AMENDMENTS
Amendment by Pub. L. 105-277 effective as if included in the
provision of the Taxpayer Relief Act of 1997, Pub. L. 105-34, to
which such amendment relates, see section 4003(l) of Pub. L.
105-277, set out as a note under section 86 of this title.
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable, with certain exceptions,
to transfers after Aug. 5, 1997, see section 1012(d) of Pub. L.
105-34, set out as a note under section 351 of this title.
EFFECTIVE DATE OF 1989 AMENDMENTS
Repeal of amendment by section 904(a) of Pub. L. 99-514 effective
Oct. 22, 1986, and I.R.C. of 1986 applicable as if the amendment
had not been enacted, see section 1401(b)(1) of Pub. L. 101-73, set
out as a Repeal of Provisions Relating to Repeal of Special
Reorganization Rules for Financial Institutions note set out under
section 597 of this title, and section 1401(c)(4) of Pub. L.
101-73, set out as Effective Date of 1989 Amendment note under
section 597 of this title.
Section 1401(c)(1) of Pub. L. 101-73 provided that: "The
amendment made by subsection (a)(1) [amending this section] shall
apply to acquisitions on or after May 10, 1989."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1018(q)(5) of Pub. L. 100-647 effective,
except as otherwise provided, as if included in the provision of
the Tax Reform Act of 1986, Pub. L. 99-514, to which such amendment
relates, see section 1019(a) of Pub. L. 100-647, set out as a note
under section 1 of this title.
Section 4012(b)(1)(C)(i) of Pub. L. 100-647 provided that: "The
amendment made by subparagraph (A) [amending this section] shall
apply to acquisitions after the date of the enactment of this Act
[Nov. 10, 1988] and before January 1, 1990."
EFFECTIVE DATE OF 1986 AMENDMENT
Repeal of amendment by section 806(f)(1) of Pub. L. 94-455
effective Jan. 1, 1986, with certain exceptions, see section
621(f)(2) of Pub. L. 99-514, set out as a note under section 382 of
this title.
Section 904(c)(1) of Pub. L. 99-514, as amended by Pub. L.
100-647, title IV, Sec. 4012(a)(1), Nov. 10, 1988, 102 Stat. 3656,
which provided that the amendments made by subsection (a), amending
this section, were to apply to acquisitions after Dec. 31, 1989, in
taxable years ending after such date, was repealed by Pub. L.
101-73, title XIV, Sec. 1401(b)(1), Aug. 9, 1989, 103 Stat. 549.
Amendment by section 1804(g)(2) of Pub. L. 99-514 applicable to
plans of reorganizations adopted after Oct. 22, 1986, see section
1804(g)(4) of Pub. L. 99-514, set out as a note under section 361
of this title.
Amendment by section 1804(h) of Pub. L. 99-514 effective, except
as otherwise provided, as if included in the provisions of the Tax
Reform Act of 1984, Pub. L. 98-369, div. A, to which such amendment
relates, see section 1881 of Pub. L. 99-514, set out as a note
under section 48 of this title.
Section 1879(l)(2) of Pub. L. 99-514 provided that: "The
amendment made by this subsection [amending this section] shall
apply as if included in section 2131 of the Tax Reform Act of 1976
[Pub. L. 94-455]."
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 63(a) of Pub. L. 98-369 applicable to
transactions pursuant to plans adopted after July 18, 1984, see
section 63(c) of Pub. L. 98-369, set out as a note under section
312 of this title.
Section 64(b) of Pub. L. 98-369 provided that: "The amendments
made by this section [amending this section] shall apply to
transactions pursuant to plans adopted after the date of the
enactment of this Act [July 18, 1984]."
Amendment by section 174(b)(5)(D) of Pub. L. 98-369 applicable to
transactions after Dec. 31, 1983, in taxable years ending after
that date, see section 174(c)(2)(A) of Pub. L. 98-369, set out as a
note under section 267 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Section 311(b)(2) of Pub. L. 97-448 provided that: "The amendment
made by subsection (b) of section 304 [amending this section] shall
take effect as if included in the amendments made by section 4 of
such Act [Pub. L. 96-589, the Bankruptcy Tax Act of 1980, see 1980
Amendment notes above]."
EFFECTIVE DATE OF 1982 AMENDMENT
Section 225(b) of Pub. L. 97-248 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendment made by subsection (a) [amending this section] shall
apply with respect to transactions occurring after August 31, 1982.
"(2) Plans adopted on or before august 31, 1982. - The amendment
made by subsection (a) shall not apply with respect to plans of
reorganization adopted on or before August 31, 1982, but only if
the transaction occurs before January 1, 1983."
EFFECTIVE DATE OF 1981 AMENDMENT
Section 246(a) of Pub. L. 97-34 provided that: "The amendment
made by sections 241 and 242 [amending this section and section 382
of this title] shall apply to any transfer made on or after January
1, 1981."
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-589 applicable to bankruptcy cases or
similar judicial proceedings commencing after Dec. 31, 1980, with
exception permitting the debtor to make the amendment applicable to
such cases or proceedings commencing after Sept. 30, 1979, see
section 7(c)(1), (f) of Pub. L. 96-589, set out as a note under
section 108 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Section 701(j)(2) of Pub. L. 95-600, as amended by Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(A) Except as provided in subparagraphs (B) and (C), the
amendments made by paragraph (1) [amending this section] shall
apply as if included in section 368(a)(2)(F) of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954] as added by section
2131(a) of the Tax Reform Act of 1976 [Pub. L. 94-455, title XX,
Sec. 2131(a), Oct. 4, 1976, 90 Stat. 1922].
"(B) Clause (viii) of section 368(a)(2)(F) of the Internal
Revenue Code of 1986 (as added by paragraph (1)) shall apply only
with respect to losses sustained after September 26, 1977.
"(C) Clause (vii) of section 368(a)(2)(F) of the Internal Revenue
Code of 1986 (as added by paragraph (1)) shall apply only with
respect to transfers made after September 26, 1977."
EFFECTIVE DATE OF 1976 AMENDMENT
Section 2131(f)(1), (2) of Pub. L. 94-455, as amended by Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) Except as provided in paragraph (2), the amendment made by
subsection (a) [amending this section] shall apply to transfers
made after February 17, 1976, in taxable years ending after such
date.
"(2) The amendment made by subsection (a) shall not apply to
transfers made in accordance with a ruling issued by the Internal
Revenue Service before February 18, 1976, holding that a proposed
transaction would be a reorganization described in paragraph (1) of
section 368(a) of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954]."
For effective date of amendment by section 806(f)(1) of Pub. L.
94-455, see section 806(g)(2), (3) of Pub. L. 94-455, formerly set
out as a note under section 382 of this title.
EFFECTIVE DATE OF 1971 AMENDMENT
Section 1(c) of Pub. L. 91-693 provided that: "The amendments
made by this section [amending this section] shall apply to
statutory mergers occurring after December 31, 1970."
EFFECTIVE DATE OF 1968 AMENDMENT
Section 1(c) of Pub. L. 90-621 provided that: "The amendments
made by subsections (a) and (b) [amending this section] shall apply
to statutory mergers occurring after the date of the enactment of
this Act [Oct. 22, 1968]."
EFFECTIVE DATE OF 1964 AMENDMENT
Section 218(c) of Pub. L. 88-272 provided that: "The amendments
made by this section [amending this section] shall apply with
respect to transactions after December 31, 1963, in taxable years
ending after such date."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 108, 171, 247, 249, 279,
306, 312, 351, 354, 355, 357, 367, 381, 382, 384, 402, 453, 512,
542, 584, 995, 1042, 1202, 1244, 1278, 4912, 4920, 4978, 6166, 6901
of this title; title 12 section 1717.
-FOOTNOTE-
(!1) So in original. A reference to 15 U.S.C. 80a-2(a)(36) was
probably intended.
-End-
-CITE-
26 USC [PART IV - REPEALED] 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
[PART IV - REPEALED]
-HEAD-
[PART IV - REPEALED]
-End-
-CITE-
26 USC Secs. 370 to 372 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
[PART IV - REPEALED]
-HEAD-
[Secs. 370 to 372. Repealed. Pub. L. 101-508, title XI, Sec.
11801(a)(19), Nov. 5, 1990, 104 Stat. 1388-521]
-MISC1-
Section 370, added Pub. L. 96-589, Sec. 4(f), Dec. 24, 1980, 94
Stat. 3404, related to termination of part.
Section 371, acts Aug. 16, 1954, ch. 736, 68A Stat. 121; Oct. 4,
1976, Pub. L. 94-455, title XIX, Sec. 1901(a)(50), 90 Stat. 1773,
related to reorganization in certain receivership and bankruptcy
proceedings.
Section 372, acts Aug. 16, 1954, ch. 736, 68A Stat. 122; Sept. 2,
1958, Pub. L. 85-866, title I, Sec. 95(a), 72 Stat. 1671; Oct. 4,
1976, Pub. L. 94-455, title XIX, Secs. 1901(a)(51), (b)(14)(A),
1906(b)(13)(A), 90 Stat. 1773, 1795, 1834, related to basis in
connection with certain receivership and bankruptcy proceedings.
SAVINGS PROVISION
For provisions that nothing in repeal by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 29 of this title.
-End-
-CITE-
26 USC Sec. 373 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
[PART IV - REPEALED]
-HEAD-
[Sec. 373. Repealed. Pub. L. 94-455, title XIX, Sec. 1901(a)(52),
Oct. 4, 1976, 90 Stat. 1773]
-MISC1-
Section, acts Aug. 16, 1954, ch. 736, 68A Stat. 123; June 29,
1956, ch. 463, Sec. 3, 70 Stat. 403, related to loss not recognized
in certain railroad reorganizations.
EFFECTIVE DATE OF REPEAL
Repeal effective for taxable years beginning after Dec. 31, 1976,
see section 1901(d) of Pub. L. 94-455, set out as an Effective Date
of 1976 Amendment note under section 2 of this title.
-End-
-CITE-
26 USC Sec. 374 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
[PART IV - REPEALED]
-HEAD-
[Sec. 374. Repealed. Pub. L. 101-508, title XI, Sec. 11801(a)(19),
Nov. 5, 1990, 104 Stat. 1388-521]
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Section, added June 29, 1956, ch. 463, Sec. 1, 70 Stat. 402;
amended Mar. 31, 1976, Pub. L. 94-253, Sec. 1(a), (d), 90 Stat.
295, 296; Oct. 4, 1976, Pub. L. 94-455, title XIX, Sec.
1901(a)(53), (b)(10)(A), (14)(B), (C), 90 Stat. 1773, 1795, 1796;
Nov. 6, 1978, Pub. L. 95-600, title III, Sec. 369(a), 92 Stat.
2857; Apr. 1, 1980, Pub. L. 96-222, title I, Sec. 103(a)(14), 94
Stat. 214; Oct. 22, 1986, Pub. L. 99-514, title XVIII, Sec.
1899A(9), 100 Stat. 2958, related to nonrecognition of gain or loss
in certain railroad reorganizations.
SAVINGS PROVISION
For provisions that nothing in repeal by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 29 of this title.
-End-
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26 USC PART V - CARRYOVERS 01/19/04
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TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART V - CARRYOVERS
-HEAD-
PART V - CARRYOVERS
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Sec.
381. Carryovers in certain corporate acquisitions.
382. Limitation on net operating loss carryforwards and
certain built-in losses following ownership change.
383. Special limitations on certain excess credits, etc.
384. Limitation on use of preacquisition losses to offset
built-in gains.
AMENDMENTS
1987 - Pub. L. 100-203, title X, Sec. 10226(b), Dec. 22, 1987,
101 Stat. 1330-415, added item 384.
1986 - Pub. L. 99-514, title VI, Sec. 621(c)(2), Oct. 22, 1986,
100 Stat. 2266, substituted "Limitation on net operating loss
carryforwards and certain built-in losses following ownership
change" for "Special limitations on net operating loss carryovers"
in item 382 and "Special limitations on certain excess credits,
etc." for "Special limitations on unused business credits, research
credits, foreign taxes, and capital losses" in item 383.
1984 - Pub. L. 98-369, div. A, title IV, Sec. 474(r)(12)(C), July
18, 1984, 98 Stat. 842, substituted "unused business credits,
research credits, foreign taxes, and capital losses" for
"carryovers of unused investment credits, work incentive program
credits, new employee credits, alcohol fuel credits, research
credits, employee stock ownership credits, foreign taxes, and
capital losses" in item 383.
1981 - Pub. L. 97-34, title II, Sec. 221(b)(1)(E), title III,
Sec. 331(d)(1)(E), Aug. 13, 1981, 95 Stat. 246, 295, inserted
references to alcohol fuel credits, research credits, and employee
stock ownership credits in item 383. For applicability of amendment
by section 221(b)(1)(E) to amounts paid or incurred after June 30,
1981, and before Jan. 1, 1986, see section 221(d) of Pub. L. 97-34,
set out as an Effective Date note under section 30 of this title.
1977 - Pub. L. 95-30, title II, Sec. 202(d)(3)(D), May 23, 1977,
91 Stat. 148, inserted "new employee credits," after "work
incentive program credits," in item 383.
1971 - Pub. L. 92-178, title III, Sec. 302(b), Dec. 10, 1971, 85
Stat. 521, added item 383.
-End-
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26 USC Sec. 381 01/19/04
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TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART V - CARRYOVERS
-HEAD-
Sec. 381. Carryovers in certain corporate acquisitions
-STATUTE-
(a) General rule
In the case of the acquisition of assets of a corporation by
another corporation -
(1) in a distribution to such other corporation to which
section 332 (relating to liquidations of subsidiaries) applies;
or
(2) in a transfer to which section 361 (relating to
nonrecognition of gain or loss to corporations) applies, but only
if the transfer is in connection with a reorganization described
in subparagraph (A), (C), (D), (F), or (G) of section 368(a)(1),
the acquiring corporation shall succeed to and take into account,
as of the close of the day of distribution or transfer, the items
described in subsection (c) of the distributor or transferor
corporation, subject to the conditions and limitations specified in
subsections (b) and (c). For purposes of the preceding sentence, a
reorganization shall be treated as meeting the requirements of
subparagraph (D) or (G) of section 368(a)(1) only if the
requirements of subparagraphs (A) and (B) of section 354(b)(1) are
met.
(b) Operating rules
Except in the case of an acquisition in connection with a
reorganization described in subparagraph (F) of section 368(a)(1) -
(1) The taxable year of the distributor or transferor
corporation shall end on the date of distribution or transfer.
(2) For purposes of this section, the date of distribution or
transfer shall be the day on which the distribution or transfer
is completed; except that, under regulations prescribed by the
Secretary, the date when substantially all of the property has
been distributed or transferred may be used if the distributor or
transferor corporation ceases all operations, other than
liquidating activities, after such date.
(3) The corporation acquiring property in a distribution or
transfer described in subsection (a) shall not be entitled to
carry back a net operating loss or a net capital loss for a
taxable year ending after the date of distribution or transfer to
a taxable year of the distributor or transferor corporation.
(c) Items of the distributor or transferor corporation
The items referred to in subsection (a) are:
(1) Net operating loss carryovers
The net operating loss carryovers determined under section 172,
subject to the following conditions and limitations:
(A) the taxable year of the acquiring corporation to which
the net operating loss carryovers of the distributor or
transferor corporation are first carried shall be the first
taxable year ending after the date of distribution or transfer.
(B) In determining the net operating loss deduction, the
portion of such deduction attributable to the net operating
loss carryovers of the distributor or transferor corporation to
the first taxable year of the acquiring corporation ending
after the date of distribution or transfer shall be limited to
an amount which bears the same ratio to the taxable income
(determined without regard to a net operating loss deduction)
of the acquiring corporation in such taxable year as the number
of days in the taxable year after the date of distribution or
transfer bears to the total number of days in the taxable year.
(C) For the purpose of determining the amount of the net
operating loss carryovers under section 172(b)(2), a net
operating loss for a taxable year (hereinafter in this
subparagraph referred to as the "loss year") of a distributor
or transferor corporation which ends on or before the end of a
loss year of the acquiring corporation shall be considered to
be a net operating loss for a year prior to such loss year of
the acquiring corporation. For the same purpose, the taxable
income for a "prior taxable year" (as the term is used in
section 172(b)(2)) shall be computed as provided in such
section; except that, if the date of distribution or transfer
is on a day other than the last day of a taxable year of the
acquiring corporation -
(i) such taxable year shall (for the purpose of this
subparagraph only) be considered to be 2 taxable years
(hereinafter in this subparagraph referred to as the
"pre-acquisition part year" and the "post-acquisition part
year");
(ii) the pre-acquisition part year shall begin on the same
day as such taxable year begins and shall end on the date of
distribution or transfer;
(iii) the post-acquisition part year shall begin on the day
following the date of distribution or transfer and shall end
on the same day as the end of such taxable year;
(iv) the taxable income for such taxable year (computed
with the modifications specified in section 172(b)(2)(A) but
without a net operating loss deduction) shall be divided
between the pre-acquisition part year and the
post-acquisition part year in proportion to the number of
days in each;
(v) the net operating loss deduction for the
pre-acquisition part year shall be determined as provided in
section 172(b)(2)(B), but without regard to a net operating
loss year of the distributor or transferor corporation; and
(vi) the net operating loss deduction for the
post-acquisition part year shall be determined as provided in
section 172(b)(2)(B).
(2) Earnings and profits
In the case of a distribution or transfer described in
subsection (a) -
(A) the earnings and profits or deficit in earnings and
profits, as the case may be, of the distributor or transferor
corporation shall, subject to subparagraph (B), be deemed to
have been received or incurred by the acquiring corporation as
of the close of the date of the distribution or transfer; and
(B) a deficit in earnings and profits of the distributor,
transferor, or acquiring corporation shall be used only to
offset earnings and profits accumulated after the date of
transfer. For this purpose, the earnings and profits for the
taxable year of the acquiring corporation in which the
distribution or transfer occurs shall be deemed to have been
accumulated after such distribution or transfer in an amount
which bears the same ratio to the undistributed earnings and
profits of the acquiring corporation for such taxable year
(computed without regard to any earnings and profits received
from the distributor or transferor corporation, as described in
subparagraph (A) of this paragraph) as the number of days in
the taxable year after the date of distribution or transfer
bears to the total number of days in the taxable year.
(3) Capital loss carryover
The capital loss carryover determined under section 1212,
subject to the following conditions and limitations:
(A) The taxable year of the acquiring corporation to which
the capital loss carryover of the distributor or transferor
corporation is first carried shall be the first taxable year
ending after the date of distribution or transfer.
(B) The capital loss carryover shall be a short-term capital
loss in the taxable year determined under subparagraph (A) but
shall be limited to an amount which bears the same ratio to the
capital gain net income (determined without regard to a
short-term capital loss attributable to capital loss
carryover), if any, of the acquiring corporation in such
taxable year as the number of days in the taxable year after
the date of distribution or transfer bears to the total number
of days in the taxable year.
(C) For purposes of determining the amount of such capital
loss carryover to taxable years following the taxable year
determined under subparagraph (A), the capital gain net income
in the taxable year determined under subparagraph (A) shall be
considered to be an amount equal to the amount determined under
subparagraph (B).
(4) Method of accounting
The acquiring corporation shall use the method of accounting
used by the distributor or transferor corporation on the date of
distribution or transfer unless different methods were used by
several distributor or transferor corporations or by a
distributor or transferor corporation and the acquiring
corporation. If different methods were used, the acquiring
corporation shall use the method or combination of methods of
computing taxable income adopted pursuant to regulations
prescribed by the Secretary.
(5) Inventories
In any case in which inventories are received by the acquiring
corporation, such inventories shall be taken by such corporation
(in determining its income) on the same basis on which such
inventories were taken by the distributor or transferor
corporation, unless different methods were used by several
distributor or transferor corporations or by a distributor or
transferor corporation and the acquiring corporation. If
different methods were used, the acquiring corporation shall use
the method or combination of methods of taking inventory adopted
pursuant to regulations prescribed by the Secretary.
(6) Method of computing depreciation allowance
The acquiring corporation shall be treated as the distributor
or transferor corporation for purposes of computing the
depreciation allowance under sections 167 and 168 on property
acquired in a distribution or transfer with respect to so much of
the basis in the hands of the acquiring corporation as does not
exceed the adjusted basis in the hands of the distributor or
transferor corporation.
[(7) Repealed. June 15, 1955, ch. 143, Sec. 2(1), 69 Stat. 134]
(8) Installment method
If the acquiring corporation acquires installment obligations
(the income from which the distributor or transferor corporation
reports on the installment basis under section 453) the acquiring
corporation shall, for purposes of section 453, be treated as if
it were the distributor or transferor corporation.
(9) Amortization of bond discount or premium
If the acquiring corporation assumes liability for bonds of the
distributor or transferor corporation issued at a discount or
premium, the acquiring corporation shall be treated as the
distributor or transferor corporation after the date of
distribution or transfer for purposes of determining the amount
of amortization allowable or includible with respect to such
discount or premium.
(10) Treatment of certain mining development and exploration
expenses of distributor of transferor corporation
The acquiring corporation shall be entitled to deduct, if it
were the distributor or transferor corporation, expenses deferred
under section 616 (relating to certain development expenditures)
if the distributor or transferor corporation has so elected.
(11) Contributions to pension plans, employees' annuity plans,
and stock bonus and profit-sharing plans
The acquiring corporation shall be considered to be the
distributor or transferor corporation after the date of
distribution or transfer for the purpose of determining the
amounts deductible under section 404 with respect to pension
plans, employees' annuity plans, and stock bonus and
profit-sharing plans.
(12) Recovery of tax benefit items
If the acquiring corporation is entitled to the recovery of any
amounts previously deducted by (or allowable as credits to) the
distributor or transferor corporation, the acquiring corporation
shall succeed to the treatment under section 111 which would
apply to such amounts in the hands of the distributor or
transferor corporation.
(13) Involuntary conversions under section 1033
The acquiring corporation shall be treated as the distributor
or transferor corporation after the date of distribution or
transfer for purposes of applying section 1033.
(14) Dividend carryover to personal holding company
The dividend carryover (described in section 564) to taxable
years ending after the date of distribution or transfer.
[(15) Repealed. Pub. L. 101-508, title XI, Sec. 11801(c)(10)(A),
Nov. 5, 1990, 104 Stat. 1388-526]
(16) Certain obligations of distributor or transferor corporation
If the acquiring corporation -
(A) assumes an obligation of the distributor or transferor
corporation which, after the date of the distribution or
transfer, gives rise to a liability, and
(B) such liability, if paid or accrued by the distributor or
transferor corporation, would have been deductible in computing
its taxable income,
the acquiring corporation shall be entitled to deduct such items
when paid or accrued, as the case may be, as if such corporation
were the distributor or transferor corporation. A corporation
which would have been an acquiring corporation under this section
if the date of distribution or transfer had occurred on or after
the effective date of the provisions of this subchapter
applicable to a liquidation or reorganization, as the case may
be, shall be entitled, even though the date of distribution or
transfer occurred before such effective date, to apply this
paragraph with respect to amounts paid or accrued in taxable
years beginning after December 31, 1953, on account of such
obligations of the distributor or transferor corporation. This
paragraph shall not apply if such obligations are reflected in
the amount of stock, securities, or property transferred by the
acquiring corporation to the transferor corporation for the
property of the transferor corporation.
(17) Deficiency dividend of personal holding company
If the acquiring corporation pays a deficiency dividend (as
defined in section 547(d)) with respect to the distributor or
transferor corporation, such distributor or transferor
corporation shall, with respect to such payments, be entitled to
the deficiency dividend deduction provided in section 547.
(18) Percentage depletion on extraction of ores or minerals from
the waste or residue of prior mining
The acquiring corporation shall be considered to be the
distributor or transferor corporation for the purpose of
determining the applicability of section 613(c)(3) (relating to
extraction of ores or minerals from the ground).
(19) Charitable contributions in excess of prior years'
limitation
Contributions made in the taxable year ending on the date of
distribution or transfer and the 4 prior taxable years by the
distributor or transferor corporation in excess of the amount
deductible under section 170(b)(2) for such taxable years shall
be deductible by the acquiring corporation for its taxable years
which begin after the date of distribution or transfer, subject
to the limitations imposed in section 170(b)(2). In applying the
preceding sentence, each taxable year of the distributor or
transferor corporation beginning on or before the date of
distribution or transfer shall be treated as a prior taxable year
with reference to the acquiring corporation's taxable years
beginning after such date.
[(20), (21) Repealed. Pub. L. 94-455, title XIX, Sec.
1901(a)(54), (b)(16), Oct. 4, 1976, 90 Stat. 1773, 1796]
(22) Successor insurance company
If the acquiring corporation is an insurance company taxable
under subchapter L, there shall be taken into account (to the
extent proper to carry out the purposes of this section and of
subchapter L, and under such regulations as may be prescribed by
the Secretary) the items required to be taken into account for
purposes of subchapter L in respect of the distributor or
transferor corporation.
(23) Deficiency dividend of regulated investment company or real
estate investment trust
If the acquiring corporation pays a deficiency dividend (as
defined in section 860(f)) with respect to the distributor or
transferor corporation, such distributor or transferor
corporation shall, with respect to such payments, be entitled to
the deficiency dividend deduction provided in section 860.
(24) Credit under section 38
The acquiring corporation shall take into account (to the
extent proper to carry out the purposes of this section and
section 38, and under such regulations as may be prescribed by
the Secretary) the items required to be taken into account for
purposes of section 38 in respect of the distributor or
transferor corporation.
(25) Credit under section 53
The acquiring corporation shall take into account (to the
extent proper to carry out the purposes of this section and
section 53, and under such regulations as may be prescribed by
the Secretary) the items required to be taken into account for
purposes of section 53 in respect of the distributor or
transferor corporation.
(26) Enterprise zone provisions
The acquiring corporation shall take into account (to the
extent proper to carry out the purposes of this section and
subchapter U, and under such regulations as may be prescribed by
the Secretary) the items required to be taken into account for
purposes of subchapter U in respect of the distributor or
transferor corporation.
(d) Operations loss carrybacks and carryovers of life insurance
companies
For application of this part to operations loss carrybacks
and carryovers of life insurance companies, see section 810.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 124; June 15, 1955, ch. 143,
Sec. 2(1), 69 Stat. 134; Jan. 28, 1956, ch. 15, Sec. 1, 70 Stat. 7;
Pub. L. 85-866, title I, Sec. 29(c), Sept. 2, 1958, 72 Stat. 1628;
Pub. L. 86-69, Sec. 3(c), June 25, 1959, 73 Stat. 139; Pub. L.
87-834, Sec. 2(d), Oct. 16, 1962, 76 Stat. 971; Pub. L. 88-272,
title II, Secs. 209(d)(2), 225(i)(3), Feb. 26, 1964, 78 Stat. 46,
92; Pub. L. 90-240, Sec. 5(d), Jan. 2, 1968, 81 Stat. 778; Pub. L.
91-172, title V, Secs. 504(c)(2), 512(c), 521(f), Dec. 30, 1969, 83
Stat. 633, 639, 654; Pub. L. 92-178, title VI, Sec. 601(c)(3), Dec.
10, 1971, 85 Stat. 557; Pub. L. 94-455, title XVI, Sec. 1601(e),
title XIX, Secs. 1901(a)(54), (b)(16), (17), (21)(B), (33)(N),
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1746, 1773, 1796, 1797,
1802, 1834; Pub. L. 95-30, title II, Sec. 202(d)(3)(A), May 23,
1977, 91 Stat. 148; Pub. L. 95-600, title III, Sec. 362(d)(2), Nov.
6, 1978, 92 Stat. 2851; Pub. L. 96-223, title II, Sec.
232(b)(2)(B), Apr. 2, 1980, 94 Stat. 276; Pub. L. 96-471, Sec.
2(b)(2), Oct. 19, 1980, 94 Stat. 2253; Pub. L. 96-589, Sec. 4(g),
Dec. 24, 1980, 94 Stat. 3404; Pub. L. 97-34, title II, Secs. 208,
221(b)(1)(B), title III, Sec. 331(d)(1)(B), Aug. 13, 1981, 95 Stat.
226, 246, 294; Pub. L. 97-248, title II, Sec. 224(c)(7), Sept. 3,
1982, 96 Stat. 489; Pub. L. 97-448, title I, Secs. 102(h)(3),
103(g)(2)(F), Jan. 12, 1983, 96 Stat. 2372, 2379; Pub. L. 98-369,
div. A, title II, Sec. 211(b)(4), title IV, Sec. 474(r)(11), July
18, 1984, 98 Stat. 754, 841; Pub. L. 99-514, title II, Sec.
231(d)(3)(F), title IV, Sec. 411(b)(2)(C)(iii), title VII, Sec.
701(e)(1), title XVIII, Sec. 1812(a)(3), Oct. 22, 1986, 100 Stat.
2179, 2227, 2342, 2833; Pub. L. 100-203, title X, Sec. 10202(c)(3),
Dec. 22, 1987, 101 Stat. 1330-392; Pub. L. 100-647, title I, Sec.
1002(a)(13), Nov. 10, 1988, 102 Stat. 3355; Pub. L. 101-239, title
VII, Sec. 7841(d)(10), Dec. 19, 1989, 103 Stat. 2428; Pub. L.
101-508, title XI, Secs. 11801(c)(10)(A), 11812(b)(6), Nov. 5,
1990, 104 Stat. 1388-526, 1388-535; Pub. L. 103-66, title XIII,
Sec. 13302(e), Aug. 10, 1993, 107 Stat. 556; Pub. L. 104-188, title
I, Sec. 1704(t)(26), Aug. 20, 1996, 110 Stat. 1888.)
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AMENDMENTS
1996 - Subsec. (c)(26), (27). Pub. L. 104-188 amended directory
language of Pub. L. 101-239. See 1989 Amendment note below.
1993 - Subsec. (c)(26). Pub. L. 103-66 added par. (26).
1990 - Subsec. (c)(6). Pub. L. 101-508, Sec. 11812(b)(6)(A),
substituted "sections 167 and 168" for "subsections (b), (j), and
(k) of section 167".
Subsec. (c)(15). Pub. L. 101-508, Sec. 11801(c)(10)(A), struck
out par. (15) "Indebtedness of certain personal holding companies"
which read as follows: "The acquiring corporation shall be
considered to be the distributor or transferor corporation for the
purpose of determining the applicability of subsection (c) of
section 545, relating to deduction with respect to payment of
certain indebtedness."
Subsec. (c)(24) to (26). Pub. L. 101-508, Sec. 11812(b)(6)(B),
redesignated pars. (25) and (26) as (24) and (25), respectively,
and struck out former par. (24) "Method of computing depreciation
deduction" which read as follows: "The acquiring corporation shall
be treated as the distributor or transferor corporation for
purposes of computing the deduction allowable under section 168(a)
on property acquired in a distribution or transfer with respect to
so much of the basis in the hands of the acquiring corporation as
does not exceed the adjusted basis in the hands of the distributor
or transferor corporation."
1989 - Subsec. (c)(26), (27). Pub. L. 101-239, as amended by Pub.
L. 104-188, redesignated par. (27) as (26).
1988 - Subsec. (c)(24). Pub. L. 100-647 substituted "depreciation
deduction" for "recovery allowance for recovery property" in
heading.
1987 - Subsec. (c)(8). Pub. L. 100-203 struck out "or 453A" after
"section 453" in two places.
1986 - Subsec. (c)(10). Pub. L. 99-514, Sec. 411(b)(2)(C)(iii),
struck out last sentence which read: "For the purpose of applying
the limitation provided in section 617(h), if, for any taxable
year, the distributor or transferor corporation was allowed a
deduction under section 617(a), the acquiring corporation shall be
deemed to have been allowed such deduction."
Subsec. (c)(12). Pub. L. 99-514, Sec. 1812(a)(3), amended par.
(12) generally. Prior to amendment, par. (12), recovery of bad
debts, prior taxes, or delinquency amounts, read as follows: "If
the acquiring corporation is entitled to the recovery of bad debts,
prior taxes, or delinquency amounts previously deducted or credited
by the distributor or transferor corporation, the acquiring
corporation shall include in its income such amounts as would have
been includible by the distributor or transferor corporation in
accordance with section 111 (relating to the recovery of bad debts,
prior taxes, and delinquency amounts)."
Subsec. (c)(25), (26). Pub. L. 99-514, Sec. 231(d)(3)(F),
redesignated par. (26) as (25). Former par. (25), relating to
credit under section 30, was struck out.
Subsec. (c)(27). Pub. L. 99-514, Sec. 701(e)(1), added par. (27).
1984 - Subsec. (c)(23). Pub. L. 98-369, Sec. 474(r)(11)(B),
redesignated par. (25) as (23). Former par. (23), relating to
credit under section 38 for investment in certain depreciable
property, was struck out.
Subsec. (c)(24). Pub. L. 98-369, Sec. 474(r)(11)(B), redesignated
par. (28) as (24). Former par. (24), relating to credit under
section 40 for work incentive program expenses, was struck out.
Subsec. (c)(25). Pub. L. 98-369, Sec. 474(r)(11)(B), (C),
redesignated par. (29) as (25), and substituted "30" for "44F"
wherever appearing in heading and text. Former par. (25)
redesignated (23).
Subsec. (c)(26). Pub. L. 98-369, Sec. 474(r)(11)(D), added par.
(26). Former par. (26), relating to credit under section 44B for
employment of certain new employees, was struck out.
Subsec. (c)(27). Pub. L. 98-369, Sec. 474(r)(11)(A), struck out
par. (27) relating to credit under section 44E for alcohol used as
fuel.
Subsec. (c)(28), (29). Pub. L. 98-369, Sec. 474(r)(11)(B),
redesignated pars. (28) and (29) as (24) and (25), respectively.
Subsec. (c)(30). Pub. L. 98-369, Sec. 474(r)(11)(A), struck out
par. (30) relating to credit under section 44G.
Subsec. (d). Pub. L. 98-369, Sec. 211(b)(4), substituted "section
810" for "section 812(f)".
1983 - Subsec. (c)(28), (29). Pub. L. 97-448, Sec. 102(h)(3),
redesignated par. (28), relating to credit under section 44F, as
(29). Former par. (29) redesignated (30).
Subsec. (c)(30). Pub. L. 97-448, Sec. 103(g)(2)(F), redesignated
former par. (29), relating to credit under section 44G, as (30).
1982 - Subsec. (a)(1). Pub. L. 97-248 struck out ", except in a
case in which the basis of the assets distributed is determined
under section 334(b)(2)" after "applies".
1981 - Subsec. (c)(28). Pub. L. 97-34, Sec. 208, added par. (28)
relating to recovery allowance for recovery property.
Pub. L. 97-34, Sec. 221(b)(1)(B), added par. (28) relating to
credit under section 44F.
Subsec. (c)(29). Pub. L. 97-34, Sec. 331(d)(1)(B), added par.
(29).
1980 - Subsec. (a). Pub. L. 96-589, Sec. 4(g)(2), inserted
provisions that a reorganization shall be treated as meeting the
requirements of subparagraph (D) or (G) of section 368(a)(1) only
if the requirements of subparagraphs (A) and (B) of section
354(b)(1) are met.
Subsec. (a)(2). Pub. L. 96-589, Sec. 4(g)(1), substituted
"subparagraph (A), (C), (D), (F), or (G) of section 368(a)(1)" for
"subparagraph (A), (C), (D) (but only if the requirements of
subparagraphs (A) and (B) of section 354(b)(1) are met), or (F) of
section 368(a)(1)".
Subsec. (c)(8). Pub. L. 96-471 substituted "reports on the
installment basis under section 453 or 453A" for "has elected,
under section 453, to report on the installment basis" and "for
purposes of section 453 or 453A" for "for purposes of section 453."
Subsec. (c)(27). Pub. L. 96-223 added par. (27).
1978 - Subsec. (c)(25). Pub. L. 95-600 substituted "regulated
investment company or real estate investment trust" for "real
estate investment trust" in heading, and in text "section 860(f)"
for "section 859(d)" and "section 860" for "section 859".
1977 - Subsec. (c)(26). Pub. L. 95-30 added par. (26).
1976 - Subsec. (b)(2). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
Subsec. (c)(3). Pub. L. 94-455, Sec. 1901(b)(33)(N), substituted
in subpars. (B) and (C) "capital gain net income" for "net capital
gain".
Subsec. (c)(4), (5). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
Subsec. (c)(10). Pub. L. 94-455, Sec. 1901(b)(21(B), among other
changes, substituted reference to section 616 (relating to certain
development expenditures) if the distributor or transferor
corporation has so elected for reference to sections 615 and 616
(relating to pre-1970 exploration expenditures and development
expenditures, respectively) if the distributor or transferor
corporation has so elected and struck out provisions that if, for
any taxable year, the distributor of transferor corporation was
allowed or made the election of the deduction under section 615 of
this title, the acquiring corporation shall be deemed to have been
allowed or to have made such election of the deduction under
section 615 of this title.
Subsec. (c)(15). Pub. L. 94-455, Sec. 1901(b)(17), substituted
"subsection (c)" for "subsections (b)(7) and (c)".
Subsec. (c)(20). Pub. L. 94-455, Sec. 1901(a)(54), struck out
par. (20) which related to carry-over of unused pension trust
deductions in certain cases.
Subsec. (c)(21). Pub. L. 94-455, Sec. 1901(b)(16), struck out
par. (21) which related to pre-1954 adjustments resulting from
change in method of accounting.
Subsec. (c)(22) to (24). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
Subsec. (c)(25). Pub. L. 94-455, Sec. 1601(e), added par. (25).
1971 - Subsec. (c)(24). Pub. L. 92-178 added par. (24).
1969 - Subsec. (b)(3). Pub. L. 91-172, Sec. 512(c), substituted
"a net operating loss or a net capital loss" for "a net operating
loss".
Subsec. (c)(6). Pub. L. 91-172, Sec. 521(f), substituted
"subsections (b), (j) and (k) of section 167" for "paragraphs (2),
(3) and (4) of section 167(b)" and inserted reference to adjusted
basis in the hand of the distributor or transferor corporation.
Subsec. (c)(10). Pub. L. 91-172, Sec. 504(c)(2), substituted
"Treatment of certain mining exploration and development expenses
of distributor or transferor corporation" for "Treatment of certain
expenses deferred by the election of distributor or transferor
corporation" in heading, limited deduction of expenses deferred
under sections 615 and 616 of this title by the acquiring
corporation as if it were the distributor or transferor corporation
to pre-1970 exploration and development expenditures, and inserted
provision that if distributor or transferor corporation, for any
taxable year, was allowed the deduction in sections 615(a) or
617(a) of this title or made the election provided in section
615(b) of this title, acquiring corporation shall be deemed to have
been allowed such deduction or deductions or to have made such
election, as the case may be, for the purpose of applying the
limitation provided in section 617 of this title.
1968 - Subsec. (c)(22). Pub. L. 90-240 substituted successor
insurance companies for successor life insurance companies as the
business enterprise covered, substituted reference to insurance
companies taxable under subchapter L for reference to life
insurance companies as defined in section 801(a), and substituted
reference to the purposes of this section and of subchapter L for
reference to the purposes of this section and part I of subchapter
L.
1964 - Subsec. (c)(15). Pub. L. 88-272, Sec. 225(i)(3),
substituted "subsections (b)(7) and (c) of section 545, relating to
deductions with respect to payment of certain indebtedness" for
"section 545(b)(7), relating to a deduction for payment of certain
indebtedness incurred before Jan. 1, 1934".
Subsec. (c)(19). Pub. L. 88-272, Sec. 209(d)(2), permitted
deductions for contributions made in the taxable year and in 4
prior taxable years, instead of one prior taxable year, and
provided that each taxable year beginning on or before the
distribution or transfer date shall be treated as a prior taxable
year with reference to the acquiring corporation's taxable years
beginning after such date.
1962 - Subsec. (c)(23). Pub. L. 87-834 added par. (23).
1959 - Subsec. (c)(22). Pub. L. 86-69, Sec. 3(c)(1), added par.
(22).
Subsec. (d). Pub. L. 86-69, Sec. 3(c)(2), added subsec. (d).
1958 - Subsec. (c)(21). Pub. L. 85-866 added par. (21).
1956 - Subsec. (c)(20). Act Jan. 28, 1956 added par. (20).
1955 - Subsec. (c)(7). Act June 15, 1955, repealed par. (7) which
related to carryover of prepaid income.
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by section 11812(b)(6) of Pub. L. 101-508 applicable to
property placed in service after Nov. 5, 1990, but not applicable
to any property to which section 168 of this title does not apply
by reason of subsec. (f)(5) of section 168, and not applicable to
rehabilitation expenditures described in section 252(f)(5) of Pub.
L. 99-514, see section 11812(c) of Pub. L. 101-508, set out as a
note under section 42 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Amendment by Pub. L. 100-203 applicable to dispositions in
taxable years beginning after Dec. 31, 1987, with special rules for
nondealers and coordination with Tax Reform Act of 1986, see
section 10202(e)(1), (3), (5) of Pub. L. 100-203, set out as a note
under section 453 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 231(d)(3)(F) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1985, see section 231(g) of
Pub. L. 99-514, set out as a note under section 41 of this title.
Amendment by section 411(b)(2)(C)(iii) of Pub. L. 99-514
applicable, except as otherwise provided, to costs paid or incurred
after Dec. 31, 1986, in taxable years ending after such date, see
section 411(c) of Pub. L. 99-514, set out as a note under section
263 of this title.
Amendment by section 701(e)(1) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, with certain
exceptions and qualifications, see section 701(f) of Pub. L.
99-514, set out as an Effective Date note under section 55 of this
title.
Amendment by section 1812(a)(3) of Pub. L. 99-514 effective,
except as otherwise provided, as if included in the provisions of
the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such
amendment relates, see section 1881 of Pub. L. 99-514, set out as a
note under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 211(b)(4) of Pub. L. 98-369 applicable to
taxable years beginning after Dec. 31, 1983, see section 215 of
Pub. L. 98-369, set out as an Effective Date note under section 801
of this title.
Amendment by section 474(r)(11) of Pub. L. 98-369 applicable to
taxable years beginning after Dec. 31, 1983, and to carrybacks from
such years, see section 475(a) of Pub. L. 98-369, set out as a note
under section 21 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective, except as otherwise
provided, as if it had been included in the provision of the
Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-248 applicable to any target corporation
with respect to which the acquisition date occurs after Aug. 31,
1982, with special rules for certain acquisitions before Sept. 1,
1982, and certain acquisitions of financial institutions in which
there was a binding contract on July 22, 1982, to acquire control,
see section 224(d) of Pub. L. 97-248, set out as an Effective Date
note under section 338 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by section 208 of Pub. L. 97-34 applicable to property
placed in service after Dec. 31, 1980, in taxable years ending
after that date, see section 209(a) of Pub. L. 97-34, set out as an
Effective Date note under section 168 of this title.
Amendment by section 221(b)(1)(B) of Pub. L. 97-34 applicable to
amounts paid or incurred after June 30, 1981, see section 221(d) of
Pub. L. 97-34, as amended, set out as an Effective Date note under
section 41 of this title.
Amendment by section 331(d)(1)(B) of Pub. L. 97-34 applicable to
taxable years beginning after Dec. 31, 1981, see section 339 of
Pub. L. 97-34, set out as a note under section 401 of this title.
EFFECTIVE DATE OF 1980 AMENDMENTS
Amendment by Pub. L. 96-589 applicable to bankruptcy cases or
similar judicial proceeding commencing after Dec. 31, 1980, with
exception permitting the debtor to make the amendment applicable to
such cases or proceeding commencing after Sept. 30, 1979, see
section 7(c)(1), (f) of Pub. L. 96-589, set out as a note under
section 108 of this title.
For effective date of amendment by Pub. L. 96-471, see section
6(a)(1) of Pub. L. 96-471, set out as an Effective Date note under
section 453 of this title.
Amendment by Pub. L. 96-223 applicable to sales or uses after
Sept. 30, 1980, in taxable years ending after such date, see
section 232(h)(1) of Pub. L. 96-223, set out as an Effective Date
note under section 40 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by Pub. L. 95-600 applicable with respect to
determinations (as defined in section 860(e) of this title) after
Nov. 6, 1978, see section 362(e) of Pub. L. 95-600, set out as an
Effective Date note under section 860 of this title.
EFFECTIVE DATE OF 1977 AMENDMENT
Amendment by Pub. L. 95-30 applicable to taxable years beginning
after Dec. 31, 1976, and to credit carrybacks from such years, see
section 202(e) of Pub. L. 95-30, set out as an Effective Date note
under section 51 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
For effective date of amendment by section 1601(e) of Pub. L.
94-455, see section 1608(a) of Pub. L. 94-455, set out as a note
under section 857 of this title.
Amendment by section 1901(a)(54), (b)(16), (17), (21)(B), (33)(N)
of Pub. L. 94-455 effective for taxable years beginning after Dec.
31, 1976, see section 1901(d) of Pub. L. 94-455, set out as a note
under section 2 of this title.
EFFECTIVE DATE OF 1971 AMENDMENT
Section 601(f) of Pub. L. 92-178 provided that: "The amendments
made by this section [enacting sections 40, 50A, and 50B of this
title and amending this section and sections 56, 6411, 6501, 6511,
6601, and 6611 of this title] shall apply to taxable years
beginning after December 31, 1971."
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by section 504(c)(2) of Pub. L. 91-172 applicable with
respect to exploration expenditures paid or incurred after Dec. 31,
1969, see section 504(d)(1) of Pub. L. 91-172, set out as a note
under section 243 of this title.
Amendment by section 512(c) of Pub. L. 91-172 applicable with
respect to net capital losses sustained in taxable years beginning
after Dec. 31, 1969, see section 512(g) of Pub. L. 91-172, set out
as a note under section 1212 of this title.
Amendment by section 521(f) of Pub. L. 91-172 applicable with
respect to taxable years ending after July 24, 1969, see section
521(g) of Pub. L. 91-172, set out as a note under section 167 of
this title.
EFFECTIVE DATE OF 1968 AMENDMENT
Amendment by Pub. L. 90-240 applicable to taxable years beginning
after Dec. 31, 1966, see section 5(e) of Pub. L. 90-240, set out as
a note under section 832 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by section 225(i)(3) of Pub. L. 88-272 applicable to
taxable years beginning after Dec. 31, 1963, see section 225(l) of
Pub. L. 88-272 set out as a note under section 316 of this title.
Amendment by section 209(d)(2) of Pub. L. 88-272 applicable to
taxable years beginning after Dec. 31, 1963, with respect to
contributions paid or treated as paid under section 170(a)(2) of
this title, in taxable years beginning after Dec. 31, 1961, see
section 209(f)(2) of Pub. L. 88-272, set out as a note under
section 170 of this title.
EFFECTIVE DATE OF 1962 AMENDMENT
Amendment by Pub. L. 87-834 applicable with respect to taxable
years ending after Dec. 31, 1961, see section 2(h) of Pub. L.
87-834, set out as an Effective Date note under section 46 of this
title.
EFFECTIVE DATE OF 1959 AMENDMENT
Section 4 of Pub. L. 86-69 provided that: "Except as otherwise
provided in this Act, the amendments made by this Act [amending
this section, part I (Sec. 801 et seq.) of subchapter L, and
sections 841, 842, 891, 1016, 1201, 1232, 1504, 4371, and 6501 of
this title] shall apply only with respect to taxable years
beginning after December 31, 1957."
EFFECTIVE DATE OF 1958 AMENDMENT
For effective date of amendment by Pub. L. 85-866, see section
29(d) of Pub. L. 85-866, set out as a note under section 481 of
this title.
EFFECTIVE DATE OF 1956 AMENDMENT
Section 2 of act Jan. 28, 1956, provided that: "The amendments
made by the first section of this Act [amending this section] shall
reply with respect to taxable years beginning after December 31,
1953, and ending after August 16, 1954."
EFFECTIVE DATE OF 1955 AMENDMENT
Section 3 of act June 15, 1955, provided that: "The amendments
made by this Act [amending this section and repealing sections 452
and 462 of this title] shall apply with respect to taxable years
beginning after December 31, 1953, and ending after August 16,
1954."
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 29 of this title.
Section 4 of act June 15, 1955, as amended by act Oct. 22, 1986,
Pub. L. 99-514, Sec. 2, 100 Stat. 2095, provided:
"(a) Filing of Statement. - If -
"(1) the amount of any tax required to be paid for any taxable
year ending on or before the date of the enactment of this Act
[June 15, 1955] is increased by reason of the enactment of this
Act [amending this section and repealing sections 452 and 462],
and
"(2) the last date prescribed for payment of such tax (or any
installment thereof) is before December 15, 1955, then the
taxpayer shall, on or before December 15, 1955, file a statement
which shows the increase in the amount of such tax required to be
paid by reason of the enactment of this Act.
"(b) Form and Effect of Statement. -
"(1) Form of statement, etc. - The statement required by
subsection (a) shall be filed at the place fixed for filing the
return. Such statement shall be in such form, and shall include
such information necessary or appropriate to show the increase in
the amount of the tax required to be paid for the taxable year by
reason of the enactment of this Act, as the Secretary of the
Treasury or his delegate shall by regulations prescribe.
"(2) Treatment as amount shown on return. - The amount shown on
a statement filed under subsection (a) as the increase in the
amount of the tax required to be paid for the taxable year by
reason of the enactment of this Act shall, for all purposes of
the internal revenue laws, be treated as tax shown on the return.
Notwithstanding the preceding sentence, that portion of the
amount of increase in tax for any taxable year which is
attributable to a decrease (by reason of the enactment of this
Act) in the net operating loss for a succeeding taxable year
shall not be treated as tax shown on the return.
"(3) Waiver of interest in case of payment on or before
december 15, 1955. - If the taxpayer, on or before December 15,
1955, files the statement referred to in subsection (a) and pays
in full that portion of the amount shown thereon for which the
last date prescribed for payment is before December 15, 1955,
then for purposes of computing interest (other than interest on
overpayments) such portion shall be treated as having been paid
on the last date prescribed for payment. This paragraph shall not
apply if the amount shown on the statement as the increase in the
amount of the tax required to be paid for the taxable year by
reason of the enactment of this Act is greater than the actual
increase unless the taxpayer establishes, to the satisfaction of
the Secretary of the Treasury or his delegate, that his
computation of the greater amount was based upon a reasonable
interpretation and application of sections 452 and 462 of the
Internal Revenue Code of 1986 [formerly I.R.C. 1954] [sections
452 and 462 of this title], as those sections existed before the
enactment of this Act.
"(c) Special Rules. -
"(1) Interest for period before enactment. - Interest shall not
be imposed on the amount of any increase in tax resulting from
the enactment of this Act for any period before the day after the
date of the enactment of this Act [June 15, 1955].
"(2) Estimated tax. - Any addition to the tax under section
294(d) of the Internal Revenue Code of 1939 [section 294(d) of
former Title 26, Internal Revenue Code], shall be computed as if
this Act had not been enacted. In the case of any installment for
which the last date prescribed for payment is before December 15,
1955, any addition to the tax under section 6654 of the Internal
Revenue Code of 1986 [section 6654 of this title], shall be
computed as if this Act had not been enacted.
"(3) Treatment of certain payments which taxpayer is required
to make. - If -
"(A) the taxpayer is required to make a payment (or an
additional payment) to another person by reason of the
enactment of this Act, and
"(B) the Internal Revenue Code of 1986 [this title]
prescribes a period, which expires after the close of the
taxable year, within which the taxpayer must make such payment
(or additional payment) if the amount thereof is to be taken
into account (as a deduction or otherwise) in computing taxable
income for such taxable year,
then, subject to such regulations as the Secretary of the
Treasury or his delegate may prescribe, if such payment (or
additional payment) is made on or before December 15, 1955, it
shall be treated as having been made within the period prescribed
by such Code.
"(4) Treatment of certain dividends. - Subject to such
regulations as the Secretary of the Treasury or his delegate may
prescribe, for purposes of section 561(a)(1) of the Internal
Revenue Code of 1986 [section 561(a)(1) of this title], dividends
paid after the 15th day of the third month following the close of
the taxable year and on or before December 15, 1955, may be
treated as having been paid on the last day of the taxable year,
but only to the extent (A) that such dividends are attributable
to an increase in taxable income for the taxable year resulting
from the enactment of this Act, and (B) elected by the taxpayer.
"(5) Determination of date prescribed. - For purposes of this
section, the determination of the last date prescribed for
payment or for filing a return shall be made without regard to
any extension of time therefor and without regard to any
provision of this section.
"(6) Regulations. - For requirement that the Secretary of the
Treasury or his delegate shall prescribe all rules and
regulations as may be necessary by reason of the enactment of
this Act, see section 7805(a) of the Internal Revenue Code of
1986 [section 7805(a) of this title]."
APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION
TO TREATY OBLIGATIONS OF UNITED STATES
For applicability of amendment by section 701(e)(1) of Pub. L.
99-514 notwithstanding any treaty obligation of the United States
in effect on Oct. 22, 1986, with provision that for such purposes
any amendment by title I of Pub. L. 100-647 be treated as if it had
been included in the provision of Pub. L. 99-514 to which such
amendment relates, see section 1012(aa)(2), (4) of Pub. L. 100-647,
set out as a note under section 861 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 45A, 50, 55, 172, 394,
593, 597, 807, 809, 810, 832, 904, 1388, 1396, 1847, 7518 of this
title; title 46 App. section 1177.
-End-
-CITE-
26 USC Sec. 382 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART V - CARRYOVERS
-HEAD-
Sec. 382. Limitation on net operating loss carryforwards and
certain built-in losses following ownership change
-STATUTE-
(a) General rule
The amount of the taxable income of any new loss corporation for
any post-change year which may be offset by pre-change losses shall
not exceed the section 382 limitation for such year.
(b) Section 382 limitation
For purposes of this section -
(1) In general
Except as otherwise provided in this section, the section 382
limitation for any post-change year is an amount equal to -
(A) the value of the old loss corporation, multiplied by
(B) the long-term tax-exempt rate.
(2) Carryforward of unused limitation
If the section 382 limitation for any post-change year exceeds
the taxable income of the new loss corporation for such year
which was offset by pre-change losses, the section 382 limitation
for the next post-change year shall be increased by the amount of
such excess.
(3) Special rule for post-change year which includes change date
In the case of any post-change year which includes the change
date -
(A) Limitation does not apply to taxable income before change
Subsection (a) shall not apply to the portion of the taxable
income for such year which is allocable to the period in such
year on or before the change date. Except as provided in
subsection (h)(5) and in regulations, taxable income shall be
allocated ratably to each day in the year.
(B) Limitation for period after change
For purposes of applying the limitation of subsection (a) to
the remainder of the taxable income for such year, the section
382 limitation shall be an amount which bears the same ratio to
such limitation (determined without regard to this paragraph)
as -
(i) the number of days in such year after the change date,
bears to
(ii) the total number of days in such year.
(c) Carryforwards disallowed if continuity of business requirements
not met
(1) In general
Except as provided in paragraph (2), if the new loss
corporation does not continue the business enterprise of the old
loss corporation at all times during the 2-year period beginning
on the change date, the section 382 limitation for any
post-change year shall be zero.
(2) Exception for certain gains
The section 382 limitation for any post-change year shall not
be less than the sum of -
(A) any increase in such limitation under -
(i) subsection (h)(1)(A) for recognized built-in gains for
such year, and
(ii) subsection (h)(1)(C) for gain recognized by reason of
an election under section 338, plus
(B) any increase in such limitation under subsection (b)(2)
for amounts described in subparagraph (A) which are carried
forward to such year.
(d) Pre-change loss and post-change year
For purposes of this section -
(1) Pre-change loss
The term "pre-change loss" means -
(A) any net operating loss carryforward of the old loss
corporation to the taxable year ending with the ownership
change or in which the change date occurs, and
(B) the net operating loss of the old loss corporation for
the taxable year in which the ownership change occurs to the
extent such loss is allocable to the period in such year on or
before the change date.
Except as provided in subsection (h)(5) and in regulations, the
net operating loss shall, for purposes of subparagraph (B), be
allocated ratably to each day in the year.
(2) Post-change year
The term "post-change year" means any taxable year ending after
the change date.
(e) Value of old loss corporation
For purposes of this section -
(1) In general
Except as otherwise provided in this subsection, the value of
the old loss corporation is the value of the stock of such
corporation (including any stock described in section 1504(a)(4))
immediately before the ownership change.
(2) Special rule in the case of redemption or other corporate
contraction
If a redemption or other corporate contraction occurs in
connection with an ownership change, the value under paragraph
(1) shall be determined after taking such redemption or other
corporate contraction into account.
(3) Treatment of foreign corporations
Except as otherwise provided in regulations, in determining the
value of any old loss corporation which is a foreign corporation,
there shall be taken into account only items treated as connected
with the conduct of a trade or business in the United States.
(f) Long-term tax-exempt rate
For purposes of this section -
(1) In general
The long-term tax-exempt rate shall be the highest of the
adjusted Federal long-term rates in effect for any month in the
3-calendar-month period ending with the calendar month in which
the change date occurs.
(2) Adjusted Federal long-term rate
For purposes of paragraph (1), the term "adjusted Federal
long-term rate" means the Federal long-term rate determined under
section 1274(d), except that -
(A) paragraphs (2) and (3) thereof shall not apply, and
(B) such rate shall be properly adjusted for differences
between rates on long-term taxable and tax-exempt obligations.
(g) Ownership change
For purposes of this section -
(1) In general
There is an ownership change if, immediately after any owner
shift involving a 5-percent shareholder or any equity structure
shift -
(A) the percentage of the stock of the loss corporation owned
by 1 or more 5-percent shareholders has increased by more than
50 percentage points, over
(B) the lowest percentage of stock of the loss corporation
(or any predecessor corporation) owned by such shareholders at
any time during the testing period.
(2) Owner shift involving 5-percent shareholder
There is an owner shift involving a 5-percent shareholder if -
(A) there is any change in the respective ownership of stock
of a corporation, and
(B) such change affects the percentage of stock of such
corporation owned by any person who is a 5-percent shareholder
before or after such change.
(3) Equity structure shift defined
(A) In general
The term "equity structure shift" means any reorganization
(within the meaning of section 368). Such term shall not
include -
(i) any reorganization described in subparagraph (D) or (G)
of section 368(a)(1) unless the requirements of section
354(b)(1) are met, and
(ii) any reorganization described in subparagraph (F) of
section 368(a)(1).
(B) Taxable reorganization-type transactions, etc.
To the extent provided in regulations, the term "equity
structure shift" includes taxable reorganization-type
transactions, public offerings, and similar transactions.
(4) Special rules for application of subsection
(A) Treatment of less than 5-percent shareholders
Except as provided in subparagraphs (B)(i) and (C), in
determining whether an ownership change has occurred, all stock
owned by shareholders of a corporation who are not 5-percent
shareholders of such corporation shall be treated as stock
owned by 1 5-percent shareholder of such corporation.
(B) Coordination with equity structure shifts
For purposes of determining whether an equity structure shift
(or subsequent transaction) is an ownership change -
(i) Less than 5-percent shareholders
Subparagraph (A) shall be applied separately with respect
to each group of shareholders (immediately before such equity
structure shift) of each corporation which was a party to the
reorganization involved in such equity structure shift.
(ii) Acquisitions of stock
Unless a different proportion is established, acquisitions
of stock after such equity structure shift shall be treated
as being made proportionately from all shareholders
immediately before such acquisition.
(C) Coordination with other owner shifts
Except as provided in regulations, rules similar to the rules
of subparagraph (B) shall apply in determining whether there
has been an owner shift involving a 5-percent shareholder and
whether such shift (or subsequent transaction) results in an
ownership change.
(D) Treatment of worthless stock
If any stock held by a 50-percent shareholder is treated by
such shareholder as becoming worthless during any taxable year
of such shareholder and such stock is held by such shareholder
as of the close of such taxable year, for purposes of
determining whether an ownership change occurs after the close
of such taxable year, such shareholder -
(i) shall be treated as having acquired such stock on the
1st day of his 1st succeeding taxable year, and
(ii) shall not be treated as having owned such stock during
any prior period.
For purposes of the preceding sentence, the term "50-percent
shareholder" means any person owning 50 percent or more of the
stock of the corporation at any time during the 3-year period
ending on the last day of the taxable year with respect to
which the stock was so treated.
(h) Special rules for built-in gains and losses and section 338
gains
For purposes of this section -
(1) In general
(A) Net unrealized built-in gain
(i) In general
If the old loss corporation has a net unrealized built-in
gain, the section 382 limitation for any recognition period
taxable year shall be increased by the recognized built-in
gains for such taxable year.
(ii) Limitation
The increase under clause (i) for any recognition period
taxable year shall not exceed -
(I) the net unrealized built-in gain, reduced by
(II) recognized built-in gains for prior years ending in
the recognition period.
(B) Net unrealized built-in loss
(i) In general
If the old loss corporation has a net unrealized built-in
loss, the recognized built-in loss for any recognition period
taxable year shall be subject to limitation under this
section in the same manner as if such loss were a pre-change
loss.
(ii) Limitation
Clause (i) shall apply to recognized built-in losses for
any recognition period taxable year only to the extent such
losses do not exceed -
(I) the net unrealized built-in loss, reduced by
(II) recognized built-in losses for prior taxable years
ending in the recognition period.
(C) Special rules for certain section 338 gains
If an election under section 338 is made in connection with
an ownership change and the net unrealized built-in gain is
zero by reason of paragraph (3)(B), then, with respect to such
change, the section 382 limitation for the post-change year in
which gain is recognized by reason of such election shall be
increased by the lesser of -
(i) the recognized built-in gains by reason of such
election, or
(ii) the net unrealized built-in gain (determined without
regard to paragraph (3)(B)).
(2) Recognized built-in gain and loss
(A) Recognized built-in gain
The term "recognized built-in gain" means any gain recognized
during the recognition period on the disposition of any asset
to the extent the new loss corporation establishes that -
(i) such asset was held by the old loss corporation
immediately before the change date, and
(ii) such gain does not exceed the excess of -
(I) the fair market value of such asset on the change
date, over
(II) the adjusted basis of such asset on such date.
(B) Recognized built-in loss
The term "recognized built-in loss" means any loss recognized
during the recognition period on the disposition of any asset
except to the extent the new loss corporation establishes that
-
(i) such asset was not held by the old loss corporation
immediately before the change date, or
(ii) such loss exceeds the excess of -
(I) the adjusted basis of such asset on the change date,
over
(II) the fair market value of such asset on such date.
Such term includes any amount allowable as depreciation,
amortization, or depletion for any period within the
recognition period except to the extent the new loss
corporation establishes that the amount so allowable is not
attributable to the excess described in clause (ii).
(3) Net unrealized built-in gain and loss defined
(A) Net unrealized built-in gain and loss
(i) In general
The terms "net unrealized built-in gain" and "net
unrealized built-in loss" mean, with respect to any old loss
corporation, the amount by which -
(I) the fair market value of the assets of such
corporation immediately before an ownership change is more
or less, respectively, than
(II) the aggregate adjusted basis of such assets at such
time.
(ii) Special rule for redemptions or other corporate
contractions
If a redemption or other corporate contraction occurs in
connection with an ownership change, to the extent provided
in regulations, determinations under clause (i) shall be made
after taking such redemption or other corporate contraction
into account.
(B) Threshold requirement
(i) In general
If the amount of the net unrealized built-in gain or net
unrealized built-in loss (determined without regard to this
subparagraph) of any old loss corporation is not greater than
the lesser of -
(I) 15 percent of the amount determined for purposes of
subparagraph (A)(i)(I), or
(II) $10,000,000,
the net unrealized built-in gain or net unrealized built-in
loss shall be zero.
(ii) Cash and cash items not taken into account
In computing any net unrealized built-in gain or net
unrealized built-in loss under clause (i), except as provided
in regulations, there shall not be taken into account -
(I) any cash or cash item, or
(II) any marketable security which has a value which does
not substantially differ from adjusted basis.
(4) Disallowed loss allowed as a carryforward
If a deduction for any portion of a recognized built-in loss is
disallowed for any post-change year, such portion -
(A) shall be carried forward to subsequent taxable years
under rules similar to the rules for the carrying forward of
net operating losses (or to the extent the amount so disallowed
is attributable to capital losses, under rules similar to the
rules for the carrying forward of net capital losses), but
(B) shall be subject to limitation under this section in the
same manner as a pre-change loss.
(5) Special rules for post-change year which includes change date
For purposes of subsection (b)(3) -
(A) in applying subparagraph (A) thereof, taxable income
shall be computed without regard to recognized built-in gains
to the extent such gains increased the section 382 limitation
for the year (or recognized built-in losses to the extent such
losses are treated as pre-change losses), and gain described in
paragraph (1)(C), for the year, and
(B) in applying subparagraph (B) thereof, the section 382
limitation shall be computed without regard to recognized
built-in gains, and gain described in paragraph (1)(C), for the
year.
(6) Treatment of certain built-in items
(A) Income items
Any item of income which is properly taken into account
during the recognition period but which is attributable to
periods before the change date shall be treated as a recognized
built-in gain for the taxable year in which it is properly
taken into account.
(B) Deduction items
Any amount which is allowable as a deduction during the
recognition period (determined without regard to any carryover)
but which is attributable to periods before the change date
shall be treated as a recognized built-in loss for the taxable
year for which it is allowable as a deduction.
(C) Adjustments
The amount of the net unrealized built-in gain or loss shall
be properly adjusted for amounts which would be treated as
recognized built-in gains or losses under this paragraph if
such amounts were properly taken into account (or allowable as
a deduction) during the recognition period.
(7) Recognition period, etc.
(A) Recognition period
The term "recognition period" means, with respect to any
ownership change, the 5-year period beginning on the change
date.
(B) Recognition period taxable year
The term "recognition period taxable year" means any taxable
year any portion of which is in the recognition period.
(8) Determination of fair market value in certain cases
If 80 percent or more in value of the stock of a corporation is
acquired in 1 transaction (or in a series of related transactions
during any 12-month period), for purposes of determining the net
unrealized built-in loss, the fair market value of the assets of
such corporation shall not exceed the grossed up amount paid for
such stock properly adjusted for indebtedness of the corporation
and other relevant items.
(9) Tax-free exchanges or transfers
The Secretary shall prescribe such regulations as may be
necessary to carry out the purposes of this subsection where
property held on the change date was acquired (or is subsequently
transferred) in a transaction where gain or loss is not
recognized (in whole or in part).
(i) Testing period
For purposes of this section -
(1) 3-year period
Except as otherwise provided in this section, the testing
period is the 3-year period ending on the day of any owner shift
involving a 5-percent shareholder or equity structure shift.
(2) Shorter period where there has been recent ownership change
If there has been an ownership change under this section, the
testing period for determining whether a 2nd ownership change has
occurred shall not begin before the 1st day following the change
date for such earlier ownership change.
(3) Shorter period where all losses arise after 3-year period
begins
The testing period shall not begin before the earlier of the
1st day of the 1st taxable year from which there is a
carryforward of a loss or of an excess credit to the 1st
post-change year or the taxable year in which the transaction
being tested occurs. Except as provided in regulations, this
paragraph shall not apply to any loss corporation which has a net
unrealized built-in loss (determined after application of
subsection (h)(3)(B)).
(j) Change date
For purposes of this section, the change date is -
(1) in the case where the last component of an ownership change
is an owner shift involving a 5-percent shareholder, the date on
which such shift occurs, and
(2) in the case where the last component of an ownership change
is an equity structure shift, the date of the reorganization.
(k) Definitions and special rules
For purposes of this section -
(1) Loss corporation
The term "loss corporation" means a corporation entitled to use
a net operating loss carryover or having a net operating loss for
the taxable year in which the ownership change occurs. Except to
the extent provided in regulations, such term includes any
corporation with a net unrealized built-in loss.
(2) Old loss corporation
The term "old loss corporation" means any corporation -
(A) with respect to which there is an ownership change, and
(B) which (before the ownership change) was a loss
corporation.
(3) New loss corporation
The term "new loss corporation" means a corporation which
(after an ownership change) is a loss corporation. Nothing in
this section shall be treated as implying that the same
corporation may not be both the old loss corporation and the new
loss corporation.
(4) Taxable income
Taxable income shall be computed with the modifications set
forth in section 172(d).
(5) Value
The term "value" means fair market value.
(6) Rules relating to stock
(A) Preferred stock
Except as provided in regulations and subsection (e), the
term "stock" means stock other than stock described in section
1504(a)(4).
(B) Treatment of certain rights, etc.
The Secretary shall prescribe such regulations as may be
necessary -
(i) to treat warrants, options, contracts to acquire stock,
convertible debt interests, and other similar interests as
stock, and
(ii) to treat stock as not stock.
(C) Determinations on basis of value
Determinations of the percentage of stock of any corporation
held by any person shall be made on the basis of value.
(7) 5-percent shareholder
The term "5-percent shareholder" means any person holding 5
percent or more of the stock of the corporation at any time
during the testing period.
(l) Certain additional operating rules
For purposes of this section -
(1) Certain capital contributions not taken into account
(A) In general
Any capital contribution received by an old loss corporation
as part of a plan a principal purpose of which is to avoid or
increase any limitation under this section shall not be taken
into account for purposes of this section.
(B) Certain contributions treated as part of plan
For purposes of subparagraph (A), any capital contribution
made during the 2-year period ending on the change date shall,
except as provided in regulations, be treated as part of a plan
described in subparagraph (A).
(2) Ordering rules for application of section
(A) Coordination with section 172(b) carryover rules
In the case of any pre-change loss for any taxable year
(hereinafter in this subparagraph referred to as the "loss
year") subject to limitation under this section, for purposes
of determining under the 2nd sentence of section 172(b)(2) the
amount of such loss which may be carried to any taxable year,
taxable income for any taxable year shall be treated as not
greater than -
(i) the section 382 limitation for such taxable year,
reduced by
(ii) the unused pre-change losses for taxable years
preceding the loss year.
Similar rules shall apply in the case of any credit or loss
subject to limitation under section 383.
(B) Ordering rule for losses carried from same taxable year
In any case in which -
(i) a pre-change loss of a loss corporation for any taxable
year is subject to a section 382 limitation, and
(ii) a net operating loss of such corporation from such
taxable year is not subject to such limitation,
taxable income shall be treated as having been offset first by
the loss subject to such limitation.
(3) Operating rules relating to ownership of stock
(A) Constructive ownership
Section 318 (relating to constructive ownership of stock)
shall apply in determining ownership of stock, except that -
(i) paragraphs (1) and (5)(B) of section 318(a) shall not
apply and an individual and all members of his family
described in paragraph (1) of section 318(a) shall be treated
as 1 individual for purposes of applying this section,
(ii) paragraph (2) of section 318(a) shall be applied -
(I) without regard to the 50-percent limitation contained
in subparagraph (C) thereof, and
(II) except as provided in regulations, by treating stock
attributed thereunder as no longer being held by the entity
from which attributed,
(iii) paragraph (3) of section 318(a) shall be applied only
to the extent provided in regulations,
(iv) except to the extent provided in regulations, an
option to acquire stock shall be treated as exercised if such
exercise results in an ownership change, and
(v) in attributing stock from an entity under paragraph (2)
of section 318(a), there shall not be taken into account -
(I) in the case of attribution from a corporation, stock
which is not treated as stock for purposes of this section,
or
(II) in the case of attribution from another entity, an
interest in such entity similar to stock described in
subclause (I).
A rule similar to the rule of clause (iv) shall apply in the
case of any contingent purchase, warrant, convertible debt,
put, stock subject to a risk of forfeiture, contract to acquire
stock, or similar interests.
(B) Stock acquired by reason of death, gift, divorce,
separation, etc.
If -
(i) the basis of any stock in the hands of any person is
determined -
(I) under section 1014 (relating to property acquired
from a decedent),
(II) section 1015 (relating to property acquired by a
gift or transfer in trust), or
(III) section 1041(b)(2) (relating to transfers of
property between spouses or incident to divorce),
(ii) stock is received by any person in satisfaction of a
right to receive a pecuniary bequest, or
(iii) stock is acquired by a person pursuant to any divorce
or separation instrument (within the meaning of section
71(b)(2)),
such person shall be treated as owning such stock during the
period such stock was owned by the person from whom it was
acquired.
(C) Certain changes in percentage ownership which are
attributable to fluctuations in value not taken into account
Except as provided in regulations, any change in
proportionate ownership which is attributable solely to
fluctuations in the relative fair market values of different
classes of stock shall not be taken into account.
(4) Reduction in value where substantial nonbusiness assets
(A) In general
If, immediately after an ownership change, the new loss
corporation has substantial nonbusiness assets, the value of
the old loss corporation shall be reduced by the excess (if
any) of -
(i) the fair market value of the nonbusiness assets of the
old loss corporation, over
(ii) the nonbusiness asset share of indebtedness for which
such corporation is liable.
(B) Corporation having substantial nonbusiness assets
For purposes of subparagraph (A) -
(i) In general
The old loss corporation shall be treated as having
substantial nonbusiness assets if at least 1/3 of the value
of the total assets of such corporation consists of
nonbusiness assets.
(ii) Exception for certain investment entities
A regulated investment company to which part I of
subchapter M applies, a real estate investment trust to which
part II of subchapter M applies, a REMIC to which part IV of
subchapter M applies, or a FASIT to which part V of
subchapter M applies, shall not be treated as a new loss
corporation having substantial nonbusiness assets.
(C) Nonbusiness assets
For purposes of this paragraph, the term "nonbusiness assets"
means assets held for investment.
(D) Nonbusiness asset share
For purposes of this paragraph, the nonbusiness asset share
of the indebtedness of the corporation is an amount which bears
the same ratio to such indebtedness as -
(i) the fair market value of the nonbusiness assets of the
corporation, bears to
(ii) the fair market value of all assets of such
corporation.
(E) Treatment of subsidiaries
For purposes of this paragraph, stock and securities in any
subsidiary corporation shall be disregarded and the parent
corporation shall be deemed to own its ratable share of the
subsidiary's assets. For purposes of the preceding sentence, a
corporation shall be treated as a subsidiary if the parent owns
50 percent or more of the combined voting power of all classes
of stock entitled to vote, and 50 percent or more of the total
value of shares of all classes of stock.
(5) Title 11 or similar case
(A) In general
Subsection (a) shall not apply to any ownership change if -
(i) the old loss corporation is (immediately before such
ownership change) under the jurisdiction of the court in a
title 11 or similar case, and
(ii) the shareholders and creditors of the old loss
corporation (determined immediately before such ownership
change) own (after such ownership change and as a result of
being shareholders or creditors immediately before such
change) stock of the new loss corporation (or stock of a
controlling corporation if also in bankruptcy) which meets
the requirements of section 1504(a)(2) (determined by
substituting "50 percent" for "80 percent" each place it
appears).
(B) Reduction for interest payments to creditors becoming
shareholders
In any case to which subparagraph (A) applies, the pre-change
losses and excess credits (within the meaning of section
383(a)(2)) which may be carried to a post-change year shall be
computed as if no deduction was allowable under this chapter
for the interest paid or accrued by the old loss corporation on
indebtedness which was converted into stock pursuant to title
11 or similar case during -
(i) any taxable year ending during the 3-year period
preceding the taxable year in which the ownership change
occurs, and
(ii) the period of the taxable year in which the ownership
change occurs on or before the change date.
(C) Coordination with section 108
In applying section 108(e)(8) to any case to which
subparagraph (A) applies, there shall not be taken into account
any indebtedness for interest described in subparagraph (B).
(D) Section 382 limitation zero if another change within 2
years
If, during the 2-year period immediately following an
ownership change to which this paragraph applies, an ownership
change of the new loss corporation occurs, this paragraph shall
not apply and the section 382 limitation with respect to the
2nd ownership change for any post-change year ending after the
change date of the 2nd ownership change shall be zero.
(E) Only certain stock taken into account
For purposes of subparagraph (A)(ii), stock transferred to a
creditor shall be taken into account only to the extent such
stock is transferred in satisfaction of indebtedness and only
if such indebtedness -
(i) was held by the creditor at least 18 months before the
date of the filing of the title 11 or similar case, or
(ii) arose in the ordinary course of the trade or business
of the old loss corporation and is held by the person who at
all times held the beneficial interest in such indebtedness.
(F) Special rule for certain financial institutions
(i) In general
In the case of any ownership change to which this
subparagraph applies, this paragraph shall be applied -
(I) by substituting "1504(a)(2)(B)" for "1504(a)(2)" and
"20 percent" for "50 percent" in subparagraph (A)(ii), and
(II) without regard to subparagraphs (B) and (C).
(ii) Special rule for depositors
For purposes of applying this paragraph to an ownership
change to which this subparagraph applies -
(I) a depositor in the old loss corporation shall be
treated as a stockholder in such loss corporation
immediately before the change,
(II) deposits which, after the change, become deposits of
the new loss corporation shall be treated as stock of the
new loss corporation, and
(III) the fair market value of the outstanding stock of
the new loss corporation shall include the amount of
deposits in the new loss corporation immediately after the
change.
(iii) Changes to which subparagraph applies
This subparagraph shall apply to -
(I) an equity structure shift which is a reorganization
described in section 368(a)(3)(D)(ii) (!1) (as modified by
section 368(a)(3)(D)(iv)),(!1) or
(II) any other equity structure shift (or transaction to
which section 351 applies) which occurs as an integral part
of a transaction involving a change to which subclause (I)
applies.
This subparagraph shall not apply to any equity structure
shift or transaction occurring on or after May 10, 1989.
(G) Title 11 or similar case
For purposes of this paragraph, the term "title 11 or similar
case" has the meaning given such term by section 368(a)(3)(A).
(H) Election not to have paragraph apply
A new loss corporation may elect, subject to such terms and
conditions as the Secretary may prescribe, not to have the
provisions of this paragraph apply.
(6) Special rule for insolvency transactions
If paragraph (5) does not apply to any reorganization described
in subparagraph (G) of section 368(a)(1) or any exchange of debt
for stock in a title 11 or similar case (as defined in section
368(a)(3)(A)), the value under subsection (e) shall reflect the
increase (if any) in value of the old loss corporation resulting
from any surrender or cancellation of creditors' claims in the
transaction.
(7) Coordination with alternative minimum tax
The Secretary shall by regulation provide for the application
of this section to the alternative tax net operating loss
deduction under section 56(d).
(8) Predecessor and successor entities
Except as provided in regulations, any entity and any
predecessor or successor entities of such entity shall be treated
as 1 entity.
(m) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this section
and section 383, including (but not limited to) regulations -
(1) providing for the application of this section and section
383 where an ownership change with respect to the old loss
corporation is followed by an ownership change with respect to
the new loss corporation, and
(2) providing for the application of this section and section
383 in the case of a short taxable year,
(3) providing for such adjustments to the application of this
section and section 383 as is necessary to prevent the avoidance
of the purposes of this section and section 383, including the
avoidance of such purposes through the use of related persons,
pass-thru entities, or other intermediaries,
(4) providing for the application of subsection (g)(4) where
there is only 1 corporation involved, and
(5) providing, in the case of any group of corporations
described in section 1563(a) (determined by substituting "50
percent" for "80 percent" each place it appears and determined
without regard to paragraph (4) thereof), appropriate adjustments
to value, built-in gain or loss, and other items so that items
are not omitted or taken into account more than once.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 129; Pub. L. 88-554, Sec.
4(b)(3), Aug. 31, 1964, 78 Stat. 763; Pub. L. 94-455, title VIII,
Sec. 806(e), Oct. 4, 1976, 90 Stat. 1599; Pub. L. 96-589, Sec.
2(d), Dec. 24, 1980, 94 Stat. 3396; Pub. L. 97-34, title II, Sec.
242, Aug. 13, 1981, 95 Stat. 255; Pub. L. 98-369, div. A, title I,
Sec. 62(b)(1), July 18, 1984, 98 Stat. 583; Pub. L. 99-514, title
VI, Sec. 621(a), (e)(1), Oct. 22, 1986, 100 Stat. 2254, 2266; Pub.
L. 100-203, title X, Sec. 10225(a), (b), Dec. 22, 1987, 101 Stat.
1330-413; Pub. L. 100-647, title I, Sec. 1006(d)(1)(A)-(C),
(2)-(10), (17)(A), (18)-(28)(A), (29), (t)(22)(A), title IV, Sec.
4012(a)(3), (b)(1)(B), title V, Sec. 5077(a), Nov. 10, 1988, 102
Stat. 3395-3400, 3426, 3656, 3657, 3683; Pub. L. 101-73, title XIV,
Sec. 1401(a)(2), Aug. 9, 1989, 103 Stat. 548; Pub. L. 101-239,
title VII, Secs. 7205(a), 7304(d)(1), 7811(c)(5)(A), 7815(h),
7841(d)(11), Dec. 19, 1989, 103 Stat. 2335, 2354, 2407, 2420, 2428;
Pub. L. 103-66, title XIII, Sec. 13226(a)(2)(A), Aug. 10, 1993, 107
Stat. 487; Pub. L. 104-188, title I, Sec. 1621(b)(3), Aug. 20,
1996, 110 Stat. 1867.)
-REFTEXT-
REFERENCES IN TEXT
Section 368(a)(3)(D), referred to in subsec. (l)(5)(F)(iii)(I),
was amended generally by Pub. L. 99-514, title IX, Sec. 904(a),
Oct. 22, 1986, 100 Stat. 2385, and, as so amended, does not contain
a cl. (ii) or (iv).
-MISC1-
AMENDMENTS
1996 - Subsec. (l)(4)(B)(ii). Pub. L. 104-188 substituted "a
REMIC to which part IV of subchapter M applies, or a FASIT to which
part V of subchapter M applies" for "or a REMIC to which part IV of
subchapter M applies".
1993 - Subsec. (l)(5)(C). Pub. L. 103-66 amended heading and text
of subpar. (C) generally. Prior to amendment, text read as follows:
"(i) In general. - In any case to which subparagraph (A) applies,
50 percent of the amount which, but for the application of section
108(e)(10)(B), would have been applied to reduce tax attributes
under section 108(b) shall be so applied.
"(ii) Clarification with subparagraph (b). - In applying clause
(i), there shall not be taken into account any indebtedness for
interest described in subparagraph (B)."
1989 - Subsec. (h)(3)(B)(i). Pub. L. 101-239, Sec. 7205(a),
amended cl. (i) generally. Prior to amendment, cl. (i) read as
follows: "If the amount of the net unrealized built-in gain or net
unrealized built-in loss (determined without regard to this
subparagraph) of any old loss corporation is not greater than 25
percent of the amount determined for purposes of subparagraph
(A)(i)(I), the net unrealized built-in gain or net unrealized
built-in loss shall be zero."
Subsec. (h)(6)(B). Pub. L. 101-239, Sec. 7811(c)(5)(A)(i),
inserted "(determined without regard to any carryover)" after
"during the recognition period".
Subsec. (h)(6)(C). Pub. L. 101-239, Sec. 7811(c)(5)(A)(ii),
substituted "which would be treated as recognized built-in gains or
losses under this paragraph if such amounts were properly taken
into account (or allowable as a deduction) during the recognition
period" for "treated as recognized built-in gains or losses under
this paragraph".
Subsec. (l)(3)(B)(i)(III). Pub. L. 101-239, Sec. 7841(d)(11),
substituted "incident to divorce)," for "incident to divorce,".
Subsec. (l)(3)(C). Pub. L. 101-239, Sec. 7304(d)(1), redesignated
subpar. (D) as (C) and struck out former subpar. (C) which related
to special rule for employee stock ownership plans.
Subsec. (l)(3)(C)(ii). Pub. L. 101-239, Sec. 7815(h), substituted
"For purposes of subclause (III)," for "for purposes of subclause
(III)," in concluding provisions.
Subsec. (l)(3)(D). Pub. L. 101-239, Sec. 7304(d)(1), redesignated
subpar. (D) as (C).
Subsec. (l)(5)(F). Pub. L. 101-73 substituted "on or after May
10, 1989" for "after December 31, 1989" in last sentence.
1988 - Subsec. (e)(2). Pub. L. 100-647, Sec. 1006(d)(1)(A),
inserted "or other corporate contraction" after "redemption" in
heading and in two places in text.
Subsec. (e)(3). Pub. L. 100-647, Sec. 1006(d)(17)(A), added par.
(3).
Subsec. (g)(1)(A). Pub. L. 100-647, Sec. 1006(d)(21)(A), struck
out "new" after "stock of the".
Subsec. (g)(1)(B). Pub. L. 100-647, Sec. 1006(d)(21)(B), struck
out "old" after "stock of the".
Subsec. (g)(4)(C). Pub. L. 100-647, Sec. 1006(d)(2), inserted
"rules similar to" after "provided in regulations,".
Subsec. (h)(1)(C). Pub. L. 100-647, Sec. 1006(d)(3)(A),
substituted "Special rules for certain section 338 gains" for
"Section 338 gain" in heading and amended text generally. Prior to
amendment, text read as follows: "The section 382 limitation for
any taxable year in which gain is recognized by reason of an
election under section 338 shall be increased by the excess of -
"(i) the amount of such gain, over
"(ii) the portion of such gain taken into account in computing
recognized built-in gains for such taxable year."
Subsec. (h)(3)(A)(ii). Pub. L. 100-647, Sec. 1006(d)(28)(A),
inserted "to the extent provided in regulations," after "an
ownership change,".
Pub. L. 100-647, Sec. 1006(d)(1)(B), inserted "or other corporate
contractions" after "redemptions" in heading and "or other
corporate contraction" after "redemption" in two places in text.
Subsec. (h)(3)(B)(ii). Pub. L. 100-647, Sec. 1006(d)(26),
inserted "except as provided in regulations," after "under clause
(i),".
Subsec. (h)(4). Pub. L. 100-647, Sec. 1006(d)(20), substituted
"allowed as a carryforward" for "treated as a net operating loss"
in heading and inserted "(or to the extent the amount so disallowed
is attributable to capital losses, under rules similar to the rules
for the carrying forward of net capital losses)" after "net
operating losses" in subpar. (A).
Subsec. (h)(5)(A). Pub. L. 100-647, Sec. 1006(d)(3)(B),
substituted "recognized built-in gains to the extent such gains
increased the section 382 limitation for the year (or recognized
built-in losses to the extent such losses are treated as pre-change
losses)" for "recognized built-in gains and losses".
Subsec. (h)(6). Pub. L. 100-647, Sec. 1006(d)(22), substituted
"Treatment of certain built-in items" for "Secretary may treat
certain deductions as built-in losses" in heading and amended text
generally. Prior to amendment, text read as follows: "The Secretary
may by regulation treat amounts which accrue on or before the
change date but which are allowable as a deduction after such date
as recognized built-in losses."
Subsec. (h)(9). Pub. L. 100-647, Sec. 1006(d)(23), substituted
"was acquired (or is subsequently transferred)" for "is
transferred".
Subsec. (i)(3). Pub. L. 100-647, Sec. 1006(d)(4), inserted "the
earlier of" after "not begin before" and "or the taxable year in
which the transaction being tested occurs" after "1st post-change
year".
Subsec. (k)(1). Pub. L. 100-647, Sec. 1006(d)(5)(A), inserted "or
having a net operating loss for the taxable year in which the
ownership change occurs" after "operating loss carryover".
Subsec. (k)(2). Pub. L. 100-647, Sec. 1006(d)(5)(B), amended par.
(2) generally. Prior to amendment, par. (2) read as follows: "The
term 'old loss corporation' means any corporation with respect to
which there is an ownership change -
"(A) which (before the ownership change) was a loss
corporation, or
"(B) with respect to which there is a pre-change loss described
in subsection (d)(1)(B)."
Subsec. (l)(3)(A)(iv), (v). Pub. L. 100-647, Sec. 1006(d)(6),
added cls. (iv) and (v) and struck out former cl. (iv) which read
as follows: "except to the extent provided in regulations,
paragraph (4) of section 318(a) shall apply to an option if such
application results in an ownership change."
Subsec. (l)(3)(C)(ii). Pub. L. 100-647, Sec. 5077(a), added
subcl. (III) and concluding provisions.
Subsec. (l)(4)(B)(ii). Pub. L. 100-647, Sec. 1006(t)(22)(A),
substituted "REMIC" for "real estate mortgage pool".
Subsec. (l)(5)(A)(ii). Pub. L. 100-647, Sec. 1006(d)(25),
substituted "stock of a controlling corporation" for "stock of
controlling corporation".
Pub. L. 100-647, Sec. 1006(d)(7), substituted "after such
ownership change and as a result of being shareholders or creditors
immediately before such change" for "immediately after such
ownership change".
Subsec. (l)(5)(B). Pub. L. 100-647, Sec. 1006(d)(27), substituted
"the pre-change losses and excess credits (within the meaning of
section 383(a)(2)) which may be carried to a post-change year shall
be computed" for "the net operating loss deduction under section
172(a) for any post-change year shall be determined".
Subsec. (l)(5)(C). Pub. L. 100-647, Sec. 1006(d)(18), substituted
"tax attributes" for "carryforwards" in heading and amended text
generally. Prior to amendment, text read as follows: "In any case
to which subparagraph (A) applies, the pre-change losses and excess
credits (within the meaning of section 383(a)(2)) which may be
carried to a post-change year shall be computed as if 50 percent of
the amount which, but for the application of section 108(e)(10)(B),
would have been includible in gross income for any taxable year had
been so included."
Subsec. (l)(5)(E). Pub. L. 100-647, Sec. 1006(d)(19), substituted
"taken into account" for "of creditors taken into account" in
heading and amended introductory provisions generally. Prior to
amendment, introductory provisions read as follows: "For purposes
of subparagraph (A)(ii), stock transferred to a creditor in
satisfaction of indebtedness shall be taken into account only if
such indebtedness - ".
Subsec. (l)(5)(F). Pub. L. 100-647, Sec. 4012(a)(3), substituted
"1989" for "1988" in last sentence.
Subsec. (l)(5)(F)(i)(I). Pub. L. 100-647, Sec. 1006(d)(8)(A),
inserted " '1504(a)(2)(B)' for '1504(a)(2)' and" after "by
substituting".
Subsec. (l)(5)(F)(ii)(III). Pub. L. 100-647, Sec. 1006(d)(8)(B),
substituted "the amount of deposits in the new loss corporation
immediately after the change" for "deposits described in subclause
(II)".
Subsec. (l)(5)(F)(iii)(I). Pub. L. 100-647, Sec. 4012(b)(1)(B),
inserted "(as modified by section 368(a)(3)(D)(iv))" after "section
368(a)(3)(D)(ii)".
Pub. L. 100-647, Sec. 1006(d)(29), which directed amendment of
subcl. (I) by substituting "section 368(a)(3)(D)(ii)" for "section
368(a)(D)(ii)", could not be executed because "section
368(a)(3)(D)(ii)" appeared and "section 368(a)(D)(ii)" did not
appear.
Subsec. (l)(6). Pub. L. 100-647, Sec. 1006(d)(9), substituted
"shall reflect the increase (if any) in value of the old loss
corporation resulting from any surrender or cancellation of
creditors' claims in the transaction" for "shall be the value of
the new loss corporation immediately after the ownership change".
Subsec. (l)(8). Pub. L. 100-647, Sec. 1006(d)(10), added par.
(8).
Subsec. (m)(4). Pub. L. 100-647, Sec. 1006(d)(1)(C), redesignated
par. (5) as (4) and struck out former par. (4) which read as
follows: "providing for the treatment of corporate contractions as
redemptions for purposes of subsections (e)(2) and (h)(3)(A), and".
Subsec. (m)(5). Pub. L. 100-647, Sec. 1006(d)(24), added par.
(5).
Pub. L. 100-647, Sec. 1006(d)(1)(C), redesignated former par. (5)
as (4).
1987 - Subsec. (g)(4)(D). Pub. L. 100-203, Sec. 10225(a), added
subpar. (D).
Subsec. (h)(2)(B). Pub. L. 100-203, Sec. 10225(b), inserted at
end "Such term includes any amount allowable as depreciation,
amortization, or depletion for any period within the recognition
period except to the extent the new loss corporation establishes
that the amount so allowable is not attributable to the excess
described in clause (ii)."
1986 - Pub. L. 99-514, Sec. 621(a), in amending section
generally, in subsec. (a), substituted provisions setting forth
general rule that amount of taxable income of any new loss
corporation for any post-change year which may be offset by
pre-change losses shall not exceed section 382 limitation for such
year for provisions relating to change in ownership of corporation
and change in its business, description of persons owning
corporation, attribution of ownership, and definition of
"purchase", in subsec. (b), substituted provisions relating to
section 382 limitation for provisions relating to change in
ownership as result of reorganization, in subsec. (c), substituted
provisions relating to disallowance of carryforwards if continuity
of business requirements are not met for provisions defining stock
as all shares except nonvoting stock which is limited and preferred
as to dividends, and added subsecs. (d) to (m).
Pub. L. 99-514, Sec. 621(e)(1), repealed amendment by Pub. L.
94-455, Sec. 806(e). See 1976 Amendment note below.
1984 - Subsec. (b)(1). Pub. L. 98-369, in section as amended by
Pub. L. 94-455, substituted "subparagraph (A), (B), (C), or (F) of
section 368(a)(1) or subparagraph (D) or (G) of section 368(a)(1)
(but only if the requirements of section 354(b)(1) are met)" for
"section 368(a)(1)(A), (B), (C), (D) (but only if the requirements
of section 354(b)(1) are met, or (F)".
1981 - Subsec. (b)(7). Pub. L. 97-34 designated existing
provisions as subpar. (A) and added subpar. (B).
1980 - Subsec. (b)(7). Pub. L. 96-589 added par. (7).
1976 - Pub. L. 94-455, Sec. 806(e), which amended section
generally, substituting provisions relating to special limitations
on net operating loss carryovers based on continuity of trade or
business conducted, for provisions relating to special limitations
on net operating loss carryovers based on continuity of ownership,
was repealed by Pub. L. 99-514, Sec. 621(e)(1). See Effective Date
of 1986 and 1976 Amendment notes below.
1964 - Subsec. (a)(3). Pub. L. 88-554 inserted reference to
section 318(a)(3)(C) of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 effective Sept. 1, 1997, see section
1621(d) of Pub. L. 104-188, set out as a note under section 26 of
this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable to stock transferred after
Dec. 31, 1994, in satisfaction of any indebtedness, except that
such amendment inapplicable to stock transferred in satisfaction of
any indebtedness if such transfer is in a title 11 or similar case
filed on or before Dec. 31, 1993, see section 13226(a)(3) of Pub.
L. 103-66, set out as a note under section 108 of this title.
EFFECTIVE DATE OF 1989 AMENDMENTS
Amendment by section 7205(a) of Pub. L. 101-239 applicable,
except as otherwise provided, to ownership changes and acquisitions
after Oct. 2, 1989, in taxable years ending after such date, see
section 7205(c) of Pub. L. 101-239, set out as a note under section
56 of this title.
Section 7304(d)(2) of Pub. L. 101-239 provided that: "The
amendments made by this subsection [amending this section] shall
apply to acquisitions of employer securities after July 12, 1989,
except that such amendments shall not apply to acquisitions after
July 12, 1989, pursuant to a written binding contract in effect on
July 12, 1989, and at all times thereafter before such
acquisition."
Amendment by sections 7811(c)(5)(A) and 7815(h) of Pub. L.
101-239 effective, except as otherwise provided, as if included in
the provision of the Technical and Miscellaneous Revenue Act of
1988, Pub. L. 100-647, to which such amendment relates, see section
7817 of Pub. L. 101-239, set out as a note under section 1 of this
title.
Section 1401(c)(2) of Pub. L. 101-73 provided that: "The
amendment made by subsection (a)(2) [amending this section] shall
apply to transactions on or after May 10, 1989."
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1006(d)(1)(D) of Pub. L. 100-647 provided that: "The
amendments made by this paragraph [amending this section] shall
apply with respect to ownership changes after June 10, 1987."
Section 1006(d)(17)(B) of Pub. L. 100-647 provided that: "The
amendment made by subparagraph (A) [amending this section] shall
apply to any ownership change after June 10, 1987. For purposes of
the preceding sentence, any equity structure shift pursuant to a
plan of reorganization adopted on or before June 10, 1987, shall be
treated as occurring when such plan was adopted."
Section 1006(d)(28)(B) of Pub. L. 100-647 provided that: "The
amendment made by subparagraph (A) [amending this section] shall
apply in the case of ownership changes on or after June 21, 1988."
Amendment by section 1006(d)(2)-(10), (18)-(27), (29), (t)(22)(A)
of Pub. L. 100-647 effective, except as otherwise provided, as if
included in the provision of the Tax Reform Act of 1986, Pub. L.
99-514, to which such amendment relates, see section 1019(a) of
Pub. L. 100-647, set out as a note under section 1 of this title.
Section 4012(b)(1)(C)(ii) of Pub. L. 100-647 provided that: "The
amendment made by subparagraph (B) [amending this section] shall
apply to any ownership change occurring after the date of the
enactment of this Act [Nov. 10, 1988] and before January 1, 1990."
Section 5077(b) of Pub. L. 100-647 provided that:
"(1) In General. - The amendment made by subsection (a) [amending
this section] shall apply to acquisition after December 31, 1988.
"(2) Exception. - The amendment made by subsection (a) shall not
apply to acquisitions after December 31, 1988, pursuant to a
binding written contract entered into on or before October 21,
1988."
EFFECTIVE DATE OF 1987 AMENDMENT
Section 10225(c) of Pub. L. 100-203 provided that:
"(1) Subsection (a). - The amendment made by subsection (a)
[amending this section] shall apply in the case of stock treated as
becoming worthless in taxable years beginning after December 31,
1987.
"(2) Subsection (b). - The amendment made by subsection (b)
[amending this section] shall apply in the case of ownership
changes (as defined in section 382 of the Internal Revenue Code of
1986 as amended by subsection (a)) after December 15, 1987; except
that such amendment shall not apply in the case of any ownership
change pursuant to a binding written contract which was in effect
on December 15, 1987, and at all times thereafter before such
ownership change."
EFFECTIVE DATE OF 1986 AMENDMENT; SAVINGS PROVISIONS
Section 621(f) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1006(d)(11)-(16), title VI, Sec. 6277(a), (b), Nov.
10, 1988, 102 Stat. 3397, 3398, 3753, 3754, provided that:
"(1) Amendments made by subsections (a), (b), and (c). -
"(A) In general. -
"(i) Changes after 1986. - The amendments made by subsections
(a), (b), and (c) [amending this section and sections 318 and
383 of this title] shall apply to any ownership change after
December 31, 1986.
"(ii) Plans of reorganization adopted before 1987. - For
purposes of clause (i), any equity structure shift pursuant to
a plan of reorganization adopted before January 1, 1987, shall
be treated as occurring when such plan was adopted.
"(B) Termination of old section 382. - Except in a case
described in any of the following paragraphs -
"(i) section 382(a) of the Internal Revenue Code of 1954 (as
in effect before the amendment made by subsection (a) and the
amendments made by section 806 of the Tax Reform Act of 1976
[section 806 of Pub. L. 94-455]) shall not apply to any
increase in percentage points occurring after December 31,
1988, and
"(ii) section 382(b) of such Code (as so in effect) shall not
apply to any reorganization occurring pursuant to a plan of
reorganization adopted after December 31, 1986.
In no event shall sections 382(a) and (b) of such Code (as so in
effect) apply to any ownership change described in subparagraph
(A).
"(C) Coordination with section 382(i). - For purposes of
section 382(i) of the Internal Revenue Code of 1986 (as added by
this section), any equity structure shift pursuant to a plan of
reorganization adopted before January 1, 1987, shall be treated
as occurring when such plan was adopted.
"(2) For amendments to tax reform act of 1976. -
"(A) In general. - The repeals made by subsection (e)(1)
[repealing amendments by Pub. L. 94-455, Sec. 806(e), (f),
amending this section and sections 108, 368, and 383 of this
title] and the amendment made by subsection (e)(2) [repealing
section 806(g)(2), (3) of Pub. L. 94-455, formerly set out as an
Effective Date of 1976 Amendment note below] shall take effect on
January 1, 1986.
"(B) Election to have amendments apply. -
"(i) If a taxpayer described in clause (ii) elects to have
the provisions of this subparagraph apply, the amendments made
by subsections (e) and (f) of section 806 of the Tax Reform Act
of 1976 [amending this section and sections 108, 368, and 383
of this title] shall apply to the reorganization described in
clause (ii).
"(ii) A taxpayer is described in this clause if the taxpayer
filed a title 11 or similar case on December 8, 1981, filed a
plan of reorganization on February 5, 1986, filed an amended
plan on March 14, 1986, and received court approval for the
amended plan and disclosure statement on April 16, 1986.
"(C) Application of old rules to certain debt. - In the case of
debt of a corporation incorporated in Colorado on November 8,
1924, and reincorporated in Delaware in 1987, with headquarters
in Denver, Colorado -
"(i) the amendments made by subsections (a), (b), and (c)
shall not apply to any debt restructuring of such debt which
was approved by the debtor's Board of Directors and the lenders
in 1986, and
"(ii) the amendments made by subsections (e) and (f) of
section 806 of the Tax Reform Act of 1976 shall not apply to
such debt restructuring, except that the amendment treated as
part of such subsections under section 59(b) of the Tax Reform
Act of 1984 (relating to qualified workouts) shall apply to
such debt restructuring.
"(D) Special rule for oil and gas well drilling business. - In
the case of a Texas corporation incorporated on July 23, 1935, in
applying section 382 of the Internal Revenue Code of 1986 (as in
effect before and after the amendments made by subsections (a),
(b), and (c)) to a loan restructuring agreement during 1985,
section 382(a)(5)(C) of the Internal Revenue Code of 1954 (as
added by the amendments made by subsections (e) and (f) of
section 806 of the Tax Reform Act of 1976) shall be applied as if
it were in effect with respect to such restructuring. For
purposes of the preceding sentence, in applying section 382 (as
so in effect), if a person has a warrant to acquire stock, such
stock shall be considered as owned by such person.
"(3) Testing period. - For purposes of determining whether there
is an ownership change, the testing period shall not begin before
the later of -
"(A) May 6, 1986, or
"(B) in the case of an ownership change which occurs after May
5, 1986, and to which the amendments made by subsections (a),
(b), and (c) do not apply, the first day following the date on
which such ownership change occurs.
"(4) Special transition rules. - The amendments made by
subsections (a), (b), and (c) shall not apply to any -
"(A) stock-for-debt exchanges and stock sales made pursuant to
a plan of reorganization with respect to a petition for
reorganization filed by a corporation under chapter 11 of title
11, United States Code, on August 26, 1982, and which filed with
a United States district court a first amended and related plan
of reorganization before March 1, 1986, or
"(B) ownership change of a Delaware corporation incorporated in
August 1983, which may result from the exercise of put or call
option under an agreement entered into on September 14, 1983, but
only with respect to taxable years beginning after 1991
regardless of when such ownership change takes place.
Any regulations prescribed under section 382 of the Internal
Revenue Code of 1986 (as added by subsection (a)) which have the
effect of treating a group of shareholders as a separate 5-percent
shareholder by reason of a public offering shall not apply to any
public offering before January 1, 1989, for the benefit of
institutions described in section 591 of such Code. Unless the
corporation otherwise elects, an underwriter of any offering of
stock in a corporation before September 19, 1986 (January 1, 1989,
in the case of an offering for the benefit of an institution
described in the preceding sentence), shall not be treated as
acquiring any stock of such corporation by reason of a firm
commitment underwriting to the extent the stock is disposed of
pursuant to the offering (but in no event later than 60 days after
the initial offering).
"(5) Bankruptcy proceedings. - Unless the taxpayer elects not to
have the provisions of this paragraph apply, in the case of a
reorganization described in subparagraph (G) of section 368(a)(1)
of the Internal Revenue Code of 1986 or an exchange of debt for
stock in a title 11 or similar case, as defined in section
368(a)(3) of such Code, the amendments made by subsections (a),
(b), and (c) shall not apply to any ownership change resulting from
such a reorganization or proceeding if a petition in such case was
filed with the court before August 14, 1986. The determination as
to whether an ownership change has occurred during the period
beginning January 1, 1987, and ending on the final settlement of
any reorganization or proceeding described in the preceding
sentence shall be redetermined as of the time of such final
settlement.
"(6) Certain plans. - The amendments made by subsections (a),
(b), and (c) shall not apply to any ownership change with respect
to -
"(A) the acquisition of a corporation the stock of which is
acquired pursuant to a plan of divestiture which identified such
corporation and its assets, and was agreed to by the board of
directors of such corporation's parent corporation on May 17,
1985,
"(B) a merger which occurs pursuant to a merger agreement
(entered into before September 24, 1985) and an application for
approval by the Federal Home Loan Bank Board was filed on October
4, 1985,
"(C) a reorganization involving a party to a reorganization of
a group of corporations engaged in enhanced oil recovery
operations in California, merged in furtherance of a plan of
reorganization adopted by a board of directors vote on September
24, 1985, and a Delaware corporation whose principal oil and gas
producing fields are located in California, or
"(D) the conversion of a mutual savings and loan association
holding a Federal charter dated March 22, 1985, to a stock
savings and loan association pursuant to the rules and
regulations of the Federal Home Loan Bank Board.
"(7) Ownership change of regulated air carrier. - The amendments
made by subsections (a), (b), and (c) shall not apply to an
ownership change of a regulated air carrier if -
"(A) on July 16, 1986, at least 40 percent of the outstanding
common stock (excluding all preferred stock, whether or not
convertible) of such carrier had been acquired by a parent
corporation incorporated in March 1980 under the laws of
Delaware, and
"(B) the acquisition (by or for such parent corporation) or
retirement of the remaining common stock of such carrier is
completed before the later of March 31, 1987, or 90 days after
the requisite governmental approvals are finally granted,
but only if the ownership change occurs on or before the later of
March 31, 1987, or such 90th day. The aggregate reduction in tax
for any taxable year by reason of this paragraph shall not exceed
$10,000,000. The testing period for determining whether a
subsequent ownership change has occurred shall not begin before the
1st day following an ownership change to which this paragraph
applies.
"(8) The amendments made by subsections (a), (b), and (c) shall
not apply to any ownership change resulting from the conversion of
a Minnesota mutual savings bank holding a Federal charter dated
December 31, 1985, to a stock savings bank pursuant to the rules
and regulations of the Federal Home Loan Bank Board, and from the
issuance of stock pursuant to that conversion to a holding company
incorporated in Delaware on February 21, 1984. For purposes of
determining whether any ownership change occurs with respect to the
holding company or any subsidiary thereof (whether resulting from
the transaction described in the preceding sentence or otherwise),
any issuance of stock made by such holding company in connection
with the transaction described in the preceding sentence shall not
be taken into account.
"(9) Definitions. - Except as otherwise provided, terms used in
this subsection shall have the same meaning as when used in section
382 of the Internal Revenue Code of 1986 (as amended by this
section)."
[Section 6277(c) of Pub. L. 100-647 provided that: "The
amendments made by this section [amending section 621(f) of Pub. L.
99-514, set out above] shall take effect as if included in section
621(f)(5) of the Tax Reform Act of 1986 [Pub. L. 99-514]."]
EFFECTIVE DATE OF 1984 AMENDMENT
Section 62(b)(2) of Pub. L. 98-369 provided that: "The amendment
made by paragraph (1) [amending this section] shall take effect as
if included in the amendments made by section 4 of the Bankruptcy
Tax Act of 1980 [Pub. L. 96-589]."
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by Pub. L. 97-34 applicable to any transfer made on or
after Jan. 1, 1981, see section 246(a) of Pub. L. 97-34, set out as
a note under section 368 of this title.
EFFECTIVE DATE OF 1980 AMENDMENT
Section 2(d) of Pub. L. 96-589 provided that the amendment made
by section 2(b) of Pub. L. 96-589 is to subsec. (b) as in effect
before its amendment by section 806 of the Tax Reform Act of 1976,
Pub. L. 94-455.
Amendment by Pub. L. 96-589 applicable to transactions which
occur after Dec. 31, 1980, other than transactions which occur in a
proceeding in a bankruptcy case or similar judicial proceeding or
in a proceeding under Title 11 commencing on or before Dec. 31,
1980, with an exception permitting the debtor to make the amendment
applicable to transactions occurring after Sept. 30, 1979, in a
specified manner, see section 7(a)(1), (f) of Pub. L. 96-589, set
out as a note under section 108 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 806(g)(2), (3) of Pub. L. 94-455, as amended by Pub. L.
95-600, title III, Sec. 368(a), Nov. 6, 1978, 92 Stat. 2857; Pub.
L. 95-615, Sec. 8, Nov. 8, 1978, 92 Stat. 3098; Pub. L. 96-167,
Sec. 9(e), Dec. 29, 1979, 93 Stat. 1279; Pub. L. 97-119, title I,
Sec. 111, Dec. 29, 1981, 95 Stat. 1640; Pub. L. 98-369, div. A,
title I, Sec. 62(a), July 18, 1984, 98 Stat. 583, which provided an
effective date for the amendments made by section 806(e), (f) of
Pub. L. 94-455 for purposes of applying sections 382(a) and 383 (as
it relates to section 382(a)) of this title, was repealed by Pub.
L. 99-514, title VI, Sec. 621(e)(2), (f)(2), Oct. 22, 1986, 100
Stat. 2266, eff. Jan. 1, 1986.
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-554 effective Aug. 31, 1964, except that
for purposes of sections 302 and 304 of this title, such amendment
shall not apply to distributions in payment for stock acquisitions
or redemptions, if such acquisitions or redemptions occurred before
Aug. 31, 1964, see section 4(c) of Pub. L. 88-554, set out as a
note under section 318 of this title.
DELAY IN EFFECTIVE DATE OF 1976 AMENDMENT
Pub. L. 95-600, title III, Sec. 368, Nov. 6, 1978, 92 Stat. 2857,
provided for delaying the effective date established by section
806(g)(2), (3) of Pub. L. 94-455, formerly set out above, by
substituting "1980" for "1978", with certain elections.
REPORT ON DEPRECIATION AND BUILT-IN DEDUCTIONS; REPORT ON
BANKRUPTCY WORKOUTS
Section 621(d) of Pub. L. 99-514 directed Secretary of the
Treasury or his delegate to, not later than Jan. 1, 1989, conduct a
study and report to Committee on Ways and Means of House of
Representatives and Committee on Finance of Senate with respect to
treatment of depreciation, amortization, depletion, and other
built-in deductions for purposes of sections 382 and 383 of this
title, and, not later than Jan. 1, 1988, conduct a study and report
to committees referred to above with respect to treatment of
informal bankruptcy workouts for purposes of sections 108 and 382
of this title, prior to repeal by Pub. L. 101-508, title XI, Sec.
11832(3), Nov. 5, 1990, 104 Stat. 1388-559.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 56, 172, 318, 383, 384 of
this title.
-FOOTNOTE-
(!1) See References in Text note below.
-End-
-CITE-
26 USC Sec. 383 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART V - CARRYOVERS
-HEAD-
Sec. 383. Special limitations on certain excess credits, etc.
-STATUTE-
(a) Excess credits
(1) In general
Under regulations, if an ownership change occurs with respect
to a corporation, the amount of any excess credit for any taxable
year which may be used in any post-change year shall be limited
to an amount determined on the basis of the tax liability which
is attributable to so much of the taxable income as does not
exceed the section 382 limitation for such post-change year to
the extent available after the application of section 382 and
subsections (b) and (c) of this section.
(2) Excess credit
For purposes of paragraph (1), the term "excess credit" means -
(A) any unused general business credit of the corporation
under section 39, and
(B) any unused minimum tax credit of the corporation under
section 53.
(b) Limitation on net capital loss
If an ownership change occurs with respect to a corporation, the
amount of any net capital loss under section 1212 for any taxable
year before the 1st post-change year which may be used in any
post-change year shall be limited under regulations which shall be
based on the principles applicable under section 382. Such
regulations shall provide that any such net capital loss used in a
post-change year shall reduce the section 382 limitation which is
applied to pre-change losses under section 382 for such year.
(c) Foreign tax credits
If an ownership change occurs with respect to a corporation, the
amount of any excess foreign taxes under section 904(c) for any
taxable year before the 1st post-change taxable year shall be
limited under regulations which shall be consistent with purposes
of this section and section 382.
(d) Pro ration rules for year which includes change
For purposes of this section, rules similar to the rules of
subsections (b)(3) and (d)(1)(B) of section 382 shall apply.
(e) Definitions
Terms used in this section shall have the same respective
meanings as when used in section 382, except that appropriate
adjustments shall be made to take into account that the limitations
of this section apply to credits and net capital losses.
-SOURCE-
(Added Pub. L. 92-178, title III, Sec. 302(a), Dec. 10, 1971, 85
Stat. 521; amended Pub. L. 94-455, title VIII, Sec. 806(f)(2),
title X, Sec. 1031(b)(5), title XIX, Sec. 1906(b)(13)(A), Oct. 4,
1976, 90 Stat. 1605, 1623, 1834; Pub. L. 95-30, title II, Sec.
202(d)(3)(B), (C), May 23, 1977, 91 Stat. 148; Pub. L. 96-222,
title I, Sec. 103(a)(6)(G)(xiii), Apr. 1, 1980, 94 Stat. 211; Pub.
L. 96-223, title II, Sec. 232(b)(2)(C), (D), Apr. 2, 1980, 94 Stat.
276; Pub. L. 97-34, title II, Sec. 221(b)(1)(C), (D), title III,
Sec. 331(d)(1)(C), (D), Aug. 13, 1981, 95 Stat. 246, 294; Pub. L.
98-369, div. A, title IV, Sec. 474(r)(12)(A), (B), July 18, 1984,
98 Stat. 841; Pub. L. 99-514, title VI, Sec. 621(b), (e)(1), Oct.
22, 1986, 100 Stat. 2265, 2266.)
-MISC1-
AMENDMENTS
1986 - Pub. L. 99-514, Sec. 621(b), amended section generally.
Prior to amendment, section read as follows: "If -
"(1) the ownership and business of a corporation are changed in
the manner described in section 382(a)(1), or
"(2) in the case of a reorganization specified in paragraph (2)
of section 381(a), there is a change in ownership described in
section 382(b)(1)(B),
then the limitations provided in section 382 in such cases with
respect to the carryover of net operating losses shall apply in the
same manner, as provided under regulations prescribed by the
Secretary, with respect to any unused business credit of the
corporation which can otherwise be carried forward under section
39, to any unused credit of the corporation which could otherwise
be carried forward under section 30(g)(2), to any excess foreign
taxes of the corporation which could otherwise be carried forward
under section 904(c), and to any net capital loss of the
corporation which can otherwise be carried forward under section
1212."
Pub. L. 99-514, Sec. 621(e)(1), repealed amendment by Pub. L.
94-455, Sec. 806(f)(2). See 1976 Amendment note below.
1984 - Pub. L. 98-369, Sec. 474(r)(12)(A)(ii), in catchline of
section 383, as in effect prior to amendment by Pub. L. 94-455,
Sec. 806(f)(2), as related to section 382(a) of this title,
substituted "Special limitations on unused business credits,
research credits, foreign taxes, and capital losses" for "Special
limitations on carryovers of unused investment credits, work
incentive program credits, new employee credits, alcohol fuel
credits, research credits, employee stock ownership credits,
foreign taxes, and capital losses".
Pub. L. 98-369, Sec. 474(r)(12)(B)(ii), in catchline of section
383, as amended by Pub. L. 94-455, Sec. 806(f)(2), as related to
section 382(b) of this title, substituted "business credits,
research credits" for "investment credits, work incentive program
credits".
Pub. L. 98-369, Sec. 474(r)(12)(B)(ii), in catchline of section
383, as amended by Pub. L. 94-455, Sec. 806(f)(2), as related to
section 382(a) of this title, substituted "business credits" for
"investment credits" and struck out references to work incentive
program credits, new employee credits, alcohol fuel credits, and
employee stock ownership credits.
Pub. L. 98-369, Sec. 474(r)(12)(A)(i), in section 383, as in
effect prior to amendment by Pub. L. 94-455, Sec. 806(f)(2), as
related to section 382(a) of this title, substituted "with respect
to any unused business credit of the corporation which can
otherwise be carried forward under section 39, to any unused credit
of the corporation which could otherwise be carried forward under
section 30(g)(2), to any excess foreign taxes of the corporation
which could otherwise be carried forward under section 904(c), and
to any net capital loss of the corporation which can otherwise be
carried forward under section 1212" for "with respect to any unused
investment credit of the corporation which can otherwise be carried
forward under section 46(b), to any unused work incentive program
credit of the corporation which can otherwise be carried forward
under section 50A(b), to any unused new employee credit of the
corporation which could otherwise be carried forward under section
53(b), to any unused credit of the corporation which could
otherwise be carried forward under section 44E(e)(2), to any unused
credit of the corporation which could otherwise be carried forward
under section 44F(g)(2), to any unused credit of the corporation
which could otherwise be carried forward under section 44G(b)(2),
to any excess foreign taxes of the corporation which can otherwise
be carried forward under section 904(c), and to any net capital
loss of the corporation which can otherwise be carried forward
under section 1212".
Pub. L. 98-369, Sec. 474(r)(12)(B)(i), in section 383, as amended
by Pub. L. 94-455, Sec. 806(f)(2), as related to section 382(b) of
this title, substituted "with respect to any unused business credit
of the corporation under section 39, to any unused credit of the
corporation under section 30(g)(2), to any excess foreign taxes of
the corporation under section 904(c), and to any net capital loss
of the corporation under section 1212" for "with respect to any
unused investment credit of the corporation under section 46(b), to
any unused work incentive program credit of the corporation under
section 50A(b), to any excess foreign taxes of the corporation
under section 904(c), and to any net capital loss of the
corporation under section 1212".
Pub. L. 98-369, Sec. 474(r)(12)(B)(i), in section 383, as amended
by Pub. L. 94-455, Sec. 806(f)(2), as related to section 382(a) of
this title, substituted "with respect to any unused business credit
of the corporation under section 39, to any unused credit of the
corporation under section 30(g)(2), to any excess foreign taxes of
the corporation under section 904(c), and to any net capital loss
of the corporation under section 1212" for "with respect to any
unused investment credit of the corporation under section 46(b), to
any unused work incentive program credit of the corporation under
section 50A(b), to any unused new employee credit of the
corporation under section 53(b), to any unused credit of the
corporation under section 44E(e)(2), to any unused credit of the
corporation under section 44F(g)(2), to any unused credit of the
corporation under section 44G(b)(2), to any excess foreign taxes of
the corporation under section 904(c), and to any net capital loss
of the corporation under section 1212".
1981 - Pub. L. 97-34, Sec. 331(d)(1)(C)(ii), (D)(ii), in
catchlines of sections 383, as related to section 382(a) of this
title, before and after amendment by Pub. L. 94-455, Sec.
806(f)(2), inserted reference to employee stock ownership credits.
Pub. L. 97-34, Sec. 331(d)(1)(D)(i), in section 383, as in effect
prior to amendment by Pub. L. 94-455, Sec. 806(f)(2), as related to
section 382(a) of this title, inserted "to any unused credit of the
corporation which could otherwise be carried forward under section
44G(b)(2),".
Pub. L. 97-34, Sec. 331(d)(1)(C)(i), in section 383, as amended
by Pub. L. 94-455, Sec. 806(f)(2), as related to section 382(a) of
this title, inserted "to any unused credit of the corporation under
section 44G(b)(2),".
Pub. L. 97-34, Sec. 221(b)(1)(C)(ii), (D)(ii), in catchlines of
sections 383, as related to section 382(a) of this title, before
and after amendment by Pub. L. 94-455, Sec. 806(f)(2), inserted
reference to research credits.
Pub. L. 97-34, Sec. 221(b)(1)(D)(i), in section 383, as in effect
prior to amendment by Pub. L. 94-455, Sec. 806(f)(2), as related to
section 382(a) of this title, inserted "to any unused credit of the
corporation which could otherwise be carried forward under section
44F(g)(2)," after "section 44E(e)(2),".
Pub. L. 97-34, Sec. 221(b)(1)(C)(i), in section 383, as amended
by Pub. L. 94-455, Sec. 806(f)(2), as related to section 382(a) of
this title, inserted "to any unused credit of the corporation under
section 44F(g)(2)," after "section 44E(e)(2),".
1980 - Pub. L. 96-223, Sec. 232(b)(2)(D), in section 383, as in
effect prior to amendment by Pub. L. 94-455, Sec. 806(f)(2), as
related to section 382(a) of this title, inserted reference to
unused alcohol fuel credits in section catchline and reference to
any unused credit of the corporation which could otherwise be
carried forward under section 44E(e)(2) in text.
Pub. L. 96-223, Sec. 232(b)(2)(C), in section 383, as amended by
Pub. L. 94-455, Sec. 806(f)(2), as related to section 382(a) of
this title, inserted reference to unused alcohol fuel credits in
section catchline and reference to any unused credit of the
corporation under section 44E(e)(2) in text.
Pub. L. 96-222, in sections 383, as related to section 382(a) of
this title, before and after amendment by Pub. L. 94-455, Sec.
806(f)(2), substituted "section 53(b)" for "section 53(c)".
1977 - Pub. L. 95-30, Sec. 202(d)(3)(C), in section 383, as in
effect prior to amendment by Pub. L. 94-455, Sec. 806(f)(2), as
related to section 382(a) of this title, inserted "to any unused
new employee credit of the corporation which could otherwise be
carried forward under section 53(c)" in text and "new employee
credits," in catchline.
Pub. L. 95-30, Sec. 202(d)(3)(B), in section 383, as amended by
Pub. L. 94-455, Sec. 806(f)(2), as related to section 382(a) of
this title, inserted "to any unused new employee credit of the
corporation under section 53(c)" in text and "new employee
credits," in section catchline.
1976 - Pub. L. 94-455, Secs. 1031(b)(5), 1906(b)(13)(A), struck
out "or his delegate" after "Secretary", and substituted "section
904(c)" for "section 904(d)", respectively, in section 383 set out
first.
Pub. L. 94-455, Sec. 806(f)(2), which substituted, in sections
383 as related to section 382(a) and (b) of this title, provisions
that the net operating loss limitations in section 382 shall apply
to unused investment credits under section 46(b), to unused work
incentive program credits under section 50A(b), to excess foreign
taxes under section 904(d) and to net capital losses under section
1212 for provisions that the net operating loss carryover
limitations in section 382 shall apply, in the case of ownership
changes described in section 382(a)(1) or reorganizations specified
in section 381(a)(2) resulting in ownership changes described in
section 382(b)(1)(B), to unused investment credits under section
46(b), to unused work incentive program credits under section
50A(B), to excess foreign taxes under section 904(c), and to net
capital losses under section 1212, was repealed by Pub. L. 99-514,
Sec. 621(e)(1). See Effective Date of 1986 and 1976 Amendment notes
below.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 621(b) of Pub. L. 99-514 applicable to any
ownership change after Dec. 31, 1986, except as otherwise provided,
see section 621(f) of Pub. L. 99-514, as amended, set out as a note
under section 382 of this title.
Repeal of amendment by section 806(f)(1) of Pub. L. 94-455
effective Jan. 1, 1986, with certain exceptions, see section
621(f)(2) of Pub. L. 99-514, set out as a note under section 382 of
this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to taxable years beginning
after Dec. 31, 1983, and to carrybacks from such years, see section
475(a) of Pub. L. 98-369, set out as a note under section 21 of
this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by section 221(b)(1)(C), (D) of Pub. L. 97-34
applicable to amounts paid or incurred after June 30, 1981, see
section 221(d) of Pub. L. 97-34, as amended, set out as an
Effective Date note under section 41 of this title.
Amendment by section 331(d)(1)(C), (D) of Pub. L. 97-34
applicable to taxable years beginning after Dec. 31, 1981, see
section 339 of Pub. L. 97-34, set out as a note under section 401
of this title.
EFFECTIVE DATE OF 1980 AMENDMENTS
Amendment by Pub. L. 96-223 applicable to sales or uses after
Sept. 30, 1980, in taxable years ending after such date, see
section 232(h)(1) of Pub. L. 96-223, set out as an Effective Date
note under section 40 of this title.
Amendment by Pub. L. 96-222 effective, except as otherwise
provided, as if it had been included in the provisions of the
Revenue Act of 1978, Pub. L. 95-600, Nov. 6, 1978, 92 Stat. 2763,
to which such amendment relates, see section 201 of Pub. L. 96-222,
set out as a note under section 32 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
For effective date of amendment by section 1031(b)(5) of Pub. L.
94-455, see section 1031(c) of Pub. L. 94-455, set out as a note
under section 904 of this title.
For purposes of applying this section (as it relates to section
382(a) of this title) as amended by section 806(e), (f) of Pub. L.
94-455, the amendments made by section 806(e), (f) of Pub. L.
94-455 effective for taxable years beginning after Dec. 31, 1985,
with specified provisions for determining the beginning of the
taxable years specified in section 382(a)(1)(B)(ii) of this title,
and this section (as it relates to section 382(b) of this title) as
amended by section 806(e), (f) of Pub. L. 94-455 to apply (and such
sections as in effect prior to such amendment not to apply) to
reorganizations pursuant to a plan of reorganization adopted by one
or more of the parties thereto on or after Jan. 1, 1986, see
section 806(g)(2), (3) of Pub. L. 94-455, as amended, formerly set
out as a note under section 382 of this title.
EFFECTIVE DATE
Section 302(c) of Pub. L. 92-178 provided that: "The amendments
made by this section [enacting this section] shall be applicable
only with respect to reorganizations and other changes in ownership
occurring after the date of enactment of this Act [Dec. 10, 1971]
pursuant to a plan of reorganization or contract entered into on or
after September 29, 1971."
DELAY IN EFFECTIVE DATE OF 1976 AMENDMENT
For election by taxpayer for application of prior law with
respect to any acquisition or reorganization occurring before the
end of the taxpayer's first taxable year beginning after June 30,
1978, see section 368 of Pub. L. 95-600, set out as a Delay in
Effective Date of 1976 Amendment note under section 382 of this
title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 382, 384 of this title.
-End-
-CITE-
26 USC Sec. 384 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART V - CARRYOVERS
-HEAD-
Sec. 384. Limitation on use of preacquisition losses to offset
built-in gains
-STATUTE-
(a) General rule
If -
(1)(A) a corporation acquires directly (or through 1 or more
other corporations) control of another corporation, or
(B) the assets of a corporation are acquired by another
corporation in a reorganization described in subparagraph (A),
(C), or (D) of section 368(a)(1), and
(2) either of such corporations is a gain corporation,
income for any recognition period taxable year (to the extent
attributable to recognized built-in gains) shall not be offset by
any preacquisition loss (other than a preacquisition loss of the
gain corporation).
(b) Exception where corporations under common control
(1) In general
Subsection (a) shall not apply to the preacquisition loss of
any corporation if such corporation and the gain corporation were
members of the same controlled group at all times during the
5-year period ending on the acquisition date.
(2) Controlled group
For purposes of this subsection, the term "controlled group"
means a controlled group of corporations (as defined in section
1563(a)); except that -
(A) "more than 50 percent" shall be substituted for "at least
80 percent" each place it appears,
(B) the ownership requirements of section 1563(a) must be met
both with respect to voting power and value, and
(C) the determination shall be made without regard to
subsection (a)(4) of section 1563.
(3) Shorter period where corporations not in existence for 5
years
If either of the corporations referred to in paragraph (1) was
not in existence throughout the 5-year period referred to in
paragraph (1), the period during which such corporation was in
existence (or if both, the shorter of such periods) shall be
substituted for such 5-year period.
(c) Definitions
For purposes of this section -
(1) Recognized built-in gain
(A) In general
The term "recognized built-in gain" means any gain recognized
during the recognition period on the disposition of any asset
except to the extent the gain corporation (or, in any case
described in subsection (a)(1)(B), the acquiring corporation)
establishes that -
(i) such asset was not held by the gain corporation on the
acquisition date, or
(ii) such gain exceeds the excess (if any) of -
(I) the fair market value of such asset on the
acquisition date, over
(II) the adjusted basis of such asset on such date.
(B) Treatment of certain income items
Any item of income which is properly taken into account for
any recognition period taxable year but which is attributable
to periods before the acquisition date shall be treated as a
recognized built-in gain for the taxable year in which it is
properly taken into account and shall be taken into account in
determining the amount of the net unrealized built-in gain.
(C) Limitation
The amount of the recognized built-in gains for any
recognition period taxable year shall not exceed -
(i) the net unrealized built-in gain, reduced by
(ii) the recognized built-in gains for prior years ending
in the recognition period which (but for this section) would
have been offset by preacquisition losses.
(2) Acquisition date
The term "acquisition date" means -
(A) in any case described in subsection (a)(1)(A), the date
on which the acquisition of control occurs, or
(B) in any case described in subsection (a)(1)(B), the date
of the transfer in the reorganization.
(3) Preacquisition loss
(A) In general
The term "preacquisition loss" means -
(i) any net operating loss carryforward to the taxable year
in which the acquisition date occurs, and
(ii) any net operating loss for the taxable year in which
the acquisition date occurs to the extent such loss is
allocable to the period in such year on or before the
acquisition date.
Except as provided in regulations, the net operating loss
shall, for purposes of clause (ii), be allocated ratably to
each day in the year.
(B) Treatment of recognized built-in loss
In the case of a corporation with a net unrealized built-in
loss, the term "preacquisition loss" includes any recognized
built-in loss.
(4) Gain corporation
The term "gain corporation" means any corporation with a net
unrealized built-in gain.
(5) Control
The term "control" means ownership of stock in a corporation
which meets the requirements of section 1504(a)(2).
(6) Treatment of members of same group
Except as provided in regulations and except for purposes of
subsection (b), all corporations which are members of the same
affiliated group immediately before the acquisition date shall be
treated as 1 corporation. To the extent provided in regulations,
section 1504 shall be applied without regard to subsection (b)
thereof for purposes of the preceding sentence.
(7) Treatment of predecessors and successors
Any reference in this section to a corporation shall include a
reference to any predecessor or successor thereof.
(8) Other definitions
Except as provided in regulations, the terms "net unrealized
built-in gain", "net unrealized built-in loss", "recognized
built-in loss", "recognition period", and "recognition period
taxable year", have the same respective meanings as when used in
section 382(h), except that the acquisition date shall be taken
into account in lieu of the change date.
(d) Limitation also to apply to excess credits or net capital
losses
Rules similar to the rules of subsection (a) shall also apply in
the case of any excess credit (as defined in section 383(a)(2)) or
net capital loss.
(e) Ordering rules for net operating losses, etc.
(1) Carryover rules
If any preacquisition loss may not offset a recognized built-in
gain by reason of this section, such gain shall not be taken into
account in determining under section 172(b)(2) the amount of such
loss which may be carried to other taxable years. A similar rule
shall apply in the case of any excess credit or net capital loss
limited by reason of subsection (d).
(2) Ordering rule for losses carried from same taxable year
In any case in which -
(A) a preacquisition loss for any taxable year is subject to
limitation under subsection (a), and
(B) a net operating loss from such taxable year is not
subject to such limitation,
taxable income shall be treated as having been offset 1st by the
loss subject to such limitation.
(f) Regulations
The Secretary shall prescribe such regulations as may be
necessary to carry out the purposes of this section, including
regulations to ensure that the purposes of this section may not be
circumvented through -
(1) the use of any provision of law or regulations (including
subchapter K of this chapter), or
(2) contributions of property to a corporation.
-SOURCE-
(Added Pub. L. 100-203, title X, Sec. 10226(a), Dec. 22, 1987, 101
Stat. 1330-414; amended Pub. L. 100-647, title II, Sec.
2004(m)(1)-(4), Nov. 10, 1988, 102 Stat. 3606, 3607; Pub. L.
101-239, title VII, Sec. 7812(c)(1), Dec. 19, 1989, 103 Stat.
2412.)
-MISC1-
AMENDMENTS
1989 - Subsec. (e)(1). Pub. L. 101-239 substituted "built-in
gain" for "build-in gain".
1988 - Subsec. (a). Pub. L. 100-647, Sec. 2004(m)(1)(A), amended
subsec. (a) generally, making changes in substance and structure.
Subsec. (b). Pub. L. 100-647, Sec. 2004(m)(3), substituted
"corporations under common control" for "50 percent of gain
corporation held" in heading and amended text generally. Prior to
amendment, text read as follows: "Subsection (a) shall not apply if
more than 50 percent of the stock (by vote and value) of the gain
corporation was held throughout the 5-year period ending on the
acquisition date -
"(1) in any case described in subsection (a)(1), by members of
the affiliated group referred to in subsection (a)(1), or
"(2) in any case described in subsection (a)(2), by the
acquiring corporation or members of such acquiring corporation's
affiliated group.
For purposes of the preceding sentence, stock described in section
1504(a)(4) shall not be taken into account."
Subsec. (c)(1)(A). Pub. L. 100-647, Sec. 2004(m)(1)(D),
substituted "subsection (a)(1)(B)" for "subsection (a)(2)".
Subsec. (c)(2). Pub. L. 100-647, Sec. 2004(m)(1)(C), amended par.
(2) generally. Prior to amendment, par. (2) read as follows: "The
term 'acquisition date' means the date on which the gain
corporation becomes a member of the affiliated group or, in any
case described in subsection (a)(2), the date of the distribution
or transfer in the liquidation or reorganization."
Subsec. (c)(4) to (8). Pub. L. 100-647, Sec. 2004(m)(1)(B),
redesignated par. (4) as (8) and added pars. (4) to (7).
Subsecs. (e), (f). Pub. L. 100-647, Sec. 2004(m)(2), (4),
substituted "a corporation" for "the gain corporation" in subsec.
(e)(2), redesignated subsec. (e) as (f), and added subsec. (e).
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-239 effective, except as otherwise
provided, as if included in the provision of the Technical and
Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such
amendment relates, see section 7817 of Pub. L. 101-239, set out as
a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provisions of the Revenue Act of
1987, Pub. L. 100-203, title X, to which such amendment relates,
see section 2004(u) of Pub. L. 100-647, set out as a note under
section 56 of this title.
EFFECTIVE DATE
Section 10226(c) of Pub. L. 100-203 provided that: "The
amendments made by this section [enacting this section] shall apply
in cases where the acquisition date (as defined in section
384(c)(2) of the Internal Revenue Code of 1986 as added by this
section) is after December 15, 1987; except that such amendments
shall not apply in the case of any transaction pursuant to -
"(1) a binding written contract in effect on or before December
15, 1987, or
"(2) a letter of intent or agreement of merger signed on or
before December 15, 1987."
ELECTION TO HAVE AMENDMENTS BY PUB. L. 100-647 NOT APPLY
Section 2004(m)(5) of Pub. L. 100-647 provided that: "In any case
where the acquisition date (as defined in section 384(c)(2) of the
1986 Code as amended by this subsection) is before March 31, 1988,
the acquiring corporation may elect to have the amendments made by
this subsection not apply. Such an election shall be made in such
manner as the Secretary of the Treasury or his delegate shall
prescribe and shall be made not later than the later of the due
date (including extensions) for filing the return for the taxable
year of the acquiring corporation in which the acquisition date
occurs or the date 120 days after the date of the enactment of this
Act [Nov. 10, 1989]. Such an election, once made, shall be
irrevocable."
-End-
-CITE-
26 USC PART VI - TREATMENT OF CERTAIN CORPORATE INTERESTS
AS STOCK OR INDEBTEDNESS 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART VI - TREATMENT OF CERTAIN CORPORATE INTERESTS AS STOCK OR
INDEBTEDNESS
-HEAD-
PART VI - TREATMENT OF CERTAIN CORPORATE INTERESTS AS STOCK OR
INDEBTEDNESS
-MISC1-
Sec.
385. Treatment of certain interests in corporations as
stock or indebtedness.
AMENDMENTS
1969 - Pub. L. 91-172, title IV, Sec. 415(a), Dec. 30, 1969, 83
Stat. 613, added part heading and analysis of sections.
-End-
-CITE-
26 USC Sec. 385 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART VI - TREATMENT OF CERTAIN CORPORATE INTERESTS AS STOCK OR
INDEBTEDNESS
-HEAD-
Sec. 385. Treatment of certain interests in corporations as stock
or indebtedness
-STATUTE-
(a) Authority to prescribe regulations
The Secretary is authorized to prescribe such regulations as may
be necessary or appropriate to determine whether an interest in a
corporation is to be treated for purposes of this title as stock or
indebtedness (or as in part stock and in part indebtedness).
(b) Factors
The regulations prescribed under this section shall set forth
factors which are to be taken into account in determining with
respect to a particular factual situation whether a debtor-creditor
relationship exists or a corporation-shareholder relationship
exists. The factors so set forth in the regulations may include
among other factors:
(1) whether there is a written unconditional promise to pay on
demand or on a specified date a sum certain in money in return
for an adequate consideration in money or money's worth, and to
pay a fixed rate of interest,
(2) whether there is subordination to or preference over any
indebtedness of the corporation,
(3) the ratio of debt to equity of the corporation,
(4) whether there is convertibility into the stock of the
corporation, and
(5) the relationship between holdings of stock in the
corporation and holdings of the interest in question.
(c) Effect of classification by issuer
(1) In general
The characterization (as of the time of issuance) by the issuer
as to whether an interest in a corporation is stock or
indebtedness shall be binding on such issuer and on all holders
of such interest (but shall not be binding on the Secretary).
(2) Notification of inconsistent treatment
Except as provided in regulations, paragraph (1) shall not
apply to any holder of an interest if such holder on his return
discloses that he is treating such interest in a manner
inconsistent with the characterization referred to in paragraph
(1).
(3) Regulations
The Secretary is authorized to require such information as the
Secretary determines to be necessary to carry out the provisions
of this subsection.
-SOURCE-
(Added Pub. L. 91-172, title IV, Sec. 415(a), Dec. 30, 1969, 83
Stat. 613; amended Pub. L. 94-455, title XIX, Sec. 1906(b)(13)(A),
Oct. 4, 1976, 90 Stat. 1834; Pub. L. 101-239, title VII, Sec.
7208(a)(1), Dec. 19, 1989, 103 Stat. 2337; Pub. L. 102-486, title
XIX, Sec. 1936(a), Oct. 24, 1992, 106 Stat. 3032.)
-MISC1-
AMENDMENTS
1992 - Subsec. (c). Pub. L. 102-486 added subsec. (c).
1989 - Subsec. (a). Pub. L. 101-239 inserted "(or as in part
stock and in part indebtedness)" before period at end.
1976 - Subsec. (a). Pub. L. 94-455 struck out "or his delegate"
after "Secretary".
EFFECTIVE DATE OF 1992 AMENDMENT
Section 1936(b) of Pub. L. 102-486 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
instruments issued after the date of the enactment of this Act
[Oct. 24, 1992]."
REGULATIONS NOT TO BE APPLIED RETROACTIVELY
Section 7208(a)(2) of Pub. L. 101-239 provided that: "Any
regulations issued pursuant to the authority granted by the
amendment made by paragraph (1) [amending this section] shall only
apply with respect to instruments issued after the date on which
the Secretary of the Treasury or his delegate provides public
guidance as to the characterization of such instruments whether by
regulation, ruling, or otherwise."
-End-
-CITE-
26 USC [PART VII - REPEALED] 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
[PART VII - REPEALED]
-HEAD-
[PART VII - REPEALED]
-End-
-CITE-
26 USC Sec. 386 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
[PART VII - REPEALED]
-HEAD-
[Sec. 386. Repealed. Pub. L. 100-647, title I, Sec. 1006(e)(8)(A),
Nov. 10, 1988, 102 Stat. 3401]
-MISC1-
Section, added Pub. L. 98-369, div. A, title I, Sec. 75(a), July
18, 1984, 98 Stat. 594; amended Pub. L. 99-514, title XVIII, Sec.
1805(c)(1), Oct. 22, 1986, 100 Stat. 2810, related to transfers of
partnership and trust interests by corporations.
EFFECTIVE DATE OF REPEAL
Repeal effective, except as otherwise provided, as if included in
the provision of the Tax Reform Act of 1986, Pub. L. 99-514, to
which such amendment relates, see section 1019(a) of Pub. L.
100-647, set out as an Effective Date of 1988 Amendment note under
section 1 of this title.
-End-
-CITE-
26 USC Secs. 391 to 395 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
[PART VII - REPEALED]
-HEAD-
[Secs. 391 to 395. Repealed. Pub. L. 94-455, title XIX, Sec.
1901(a)(55), Oct. 4, 1976, 90 Stat. 1773]
-MISC1-
Section 391, acts Aug. 16, 1954, ch. 736, 68A Stat. 131; Sept. 2,
1958, Pub. L. 85-866, title I, Sec. 22(a), 72 Stat. 1620, related
to effective date of section 301 et seq. of this title.
Section 392, act Aug. 16, 1954, ch. 736, 68A Stat. 131, related
to effective date of section 331 et seq. of this title.
Section 393, act Aug. 16, 1954, ch. 736, 68A Stat. 132, related
to effective date of section 351 et seq. of this title.
Section 394, act Aug. 16, 1954, ch. 736, 68A Stat. 133, related
to effective date of section 381 et seq. of this title.
Section 395, act Aug. 16, 1954, ch. 736, 68A Stat. 133, related
to special rules for application of this subchapter.
EFFECTIVE DATE OF REPEAL
Repeal effective for taxable years beginning after Dec. 31, 1976,
see section 1901(d) of Pub. L. 94-455, set out as an Effective Date
of 1976 Amendment note under section 2 of this title.
-End-
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