-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 Repealed.]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 Repealed.]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 se |
