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).
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.
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.
For purposes of this section, fair market value shall be determined as of the date of the distribution.
In the case of a distribution to which subsection (a) applies—
That portion of the distribution which is a dividend (as defined in section 316) shall be included in gross income.
That portion of the distribution which is not a dividend shall be applied against and reduce the adjusted basis of the stock.
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.
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.
The basis of property received in a distribution to which subsection (a) applies shall be the fair market value of such property.
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.
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 or 245 with respect to such distribution.
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.
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection.
(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).
(Aug. 16, 1954, ch. 736,
2014—Subsec. (e)(2).
2003—Subsec. (f)(4).
1988—Subsec. (b)(1).
Subsec. (d).
Subsec. (e).
Subsecs. (f), (g).
1987—Subsec. (f)(1).
1986—Subsec. (f)(3).
Subsec. (g)(4).
1984—Subsec. (e).
Subsec. (e)(2).
Subsec. (f).
Subsec. (g).
Subsec. (g)(2).
1978—Subsec. (b)(1)(B)(ii).
Subsec. (d)(2)(B).
1976—Subsec. (b)(1)(B)(ii).
Subsec. (b)(1)(C).
Subsec. (d)(2)(B).
Subsec. (e).
Subsec. (f).
Subsec. (g).
1971—Subsec. (b)(1)(B).
Subsec. (b)(1)(D).
Subsec. (d)(2).
Subsec. (d)(3), (4).
1969—Subsec. (b)(1)(B)(ii).
Subsec. (d)(2)(B).
1966—Subsec. (b)(1)(B)(ii).
Subsec. (b)(1)(C).
Subsec. (d)(2)(B).
1964—Subsec. (b).
Subsec. (d).
1962—Subsec. (b)(1)(B).
Subsec. (b)(1)(C).
Subsec. (d)(2).
Subsec. (d)(3).
Subsecs. (f), (g).
Amendment by
Except as otherwise provided in section 221(a) of
Amendment by
Amendment by section 1006(e)(10)–(12) of
Amendment by section 2004(j)(3)(B) of
"(A)
"(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)
Amendment by section 1804(f)(2)(B) of
Amendment by section 54(b) of
Amendment by section 712(i)(1) of
Amendment by section 205(c)(1)(B), (C) of
Amendment by section 1901(a)(41), (b)(32)(A) of
Amendment by section 905(b)(2) of
Amendment by
Amendment by
Amendment by
Amendment by section 13(f)(2) of
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
If a corporation redeems its stock (within the meaning of section 317(b)), and if paragraph (1), (2), (3), (4), or (5) of subsection (b) applies, such redemption shall be treated as a distribution in part or full payment in exchange for the stock.
Subsection (a) shall apply if the redemption is not essentially equivalent to a dividend.
Subsection (a) shall apply if the distribution is substantially disproportionate with respect to the shareholder.
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.
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.
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.
Subsection (a) shall apply if the redemption is in complete redemption of all of the stock of the corporation owned by the shareholder.
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.
Except to the extent provided in regulations prescribed by the Secretary, subsection (a) shall apply to any distribution in redemption of stock of a publicly offered regulated investment company (within the meaning of section 67(c)(2)(B)) if—
(A) such redemption is upon the demand of the stockholder, and
(B) such company issues only stock which is redeemable upon the demand of the stockholder.
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.
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.
(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.
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.
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).
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.
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.
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.
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.
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.
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.
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.
(Aug. 16, 1954, ch. 736,
2010—Subsec. (a).
Subsec. (b)(5), (6).
1984—Subsec. (f)(3).
1982—Subsec. (a).
Subsec. (b)(4), (5).
Subsec. (c)(2)(C).
Subsecs. (e), (f).
1980—Subsec. (a).
Subsec. (b)(4), (5).
1976—Subsec. (c)(2).
Amendment by
Amendment by
"(1)
"(2)
"(A)
"(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)
"(C)
"(D)
"(i)
"(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)
"(iii)
"(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)
"(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)
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)
"(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)
Amendment by
Applicability of subsec. (b)(1) to the determination of gross investment income under
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.
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.
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.
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.
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).
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.
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.
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.
(Aug. 16, 1954, ch. 736,
1986—Subsec. (d).
"(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).
Subsec. (b)(2)(A).
Subsec. (b)(2)(B).
1976—Subsec. (b)(1)(C).
Subsec. (b)(2)(A).
Subsec. (b)(2)(B).
Subsec. (b)(3), (4).
Subsec. (c).
Subsec. (d).
Amendment by
Amendment by
Amendment by section 2004(e)(1)–(4) of
For effective date of amendment by section 2006(b)(4) of
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.
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.
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.
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.
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).
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).
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.
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).
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.
For purposes of subparagraph (C) and this subparagraph—
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.
The term "BHC" means a bank holding company (within the meaning of section 2(a) of the Bank Holding Company Act of 1956).
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.
For purposes of this paragraph—
The term "affiliated group" has the meaning given such term by section 1504(a).
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.
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.
In the case of any acquisition to which subsection (a) applies in which the acquiring corporation is a foreign corporation, no earnings and profits shall be taken into account under paragraph (2)(A) (and subparagraph (A) shall not apply) if more than 50 percent of the dividends arising from such acquisition (determined without regard to this subparagraph) would neither—
(i) be subject to tax under this chapter for the taxable year in which the dividends arise, nor
(ii) be includible in the earnings and profits of a controlled foreign corporation (as defined in section 957 and without regard to section 953(c)).
The Secretary shall prescribe such regulations as are appropriate to carry out the purposes of this paragraph.
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).
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.
For purposes of subsection (a)(1)—
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.
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.
Section 318(a) (relating to constructive ownership of stock) shall apply for purposes of determining control under this section.
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.
(Aug. 16, 1954, ch. 736,
Section 2(a) of the Bank Holding Company Act of 1956, referred to in subsec. (b)(3)(D)(ii), is classified to
2014—Subsec. (b)(3)(D).
Subsec. (b)(3)(D)(iii).
2010—Subsec. (b)(5)(B), (C).
1998—Subsec. (b)(5)(B), (C).
Subsec. (b)(6).
1997—Subsec. (a)(1).
Subsec. (b)(5).
1988—Subsec. (b)(4)(A).
1987—Subsec. (b)(4).
1986—Subsec. (a)(1).
1984—Subsec. (b)(2).
Subsec. (b)(3)(A).
Subsec. (b)(3)(B)(i).
Subsec. (b)(3)(B)(iii).
Subsec. (b)(3)(C).
Subsec. (c)(3).
1982—Subsec. (b)(2)(A).
Subsec. (b)(3).
Subsec. (c)(2), (3).
1964—Subsecs. (b)(1), (c)(2).
Amendment by
Amendment by
"(1)
"(2)
"(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."
Amendment by
"(1)
"(2)
"(A)
"(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)
"(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)
"(D)
"(i)
"(ii)
"(iii)
"(I) December 15, 1987, or
"(II) the date on which the acquisition meeting the requirements of subparagraph (A) occurred."
Amendment by
"(A)
"(B)
"(C)
"(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)
Amendment by section 712(l)(2), (4), (5)(A) of
"(1)
"(2)
"(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 [
Amendment by
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
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.
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—
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.
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.
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.
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.
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).
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).
For purposes of this section, the term "stock" includes rights to acquire such stock.
For purposes of subsections (b) and (c), the term "shareholder" includes a holder of rights or of convertible securities.
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.
Appropriate adjustments to basis shall be made for amounts includible in gross income under paragraph (1).
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.
Any amount included in gross income under paragraph (1) shall be treated as ordinary income.
For purposes of this subsection—
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.
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.
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.
For treatment of stripped interests in certain accounts or entities holding preferred stock, see section 1286(e).
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).
(Aug. 16, 1954, ch. 736,
2018—Subsec. (e)(7).
2004—Subsec. (e)(7).
1993—Subsecs. (e), (f).
1990—Subsec. (c).
Subsec. (d)(1).
Subsecs. (e), (f).
1983—Subsec. (e)(3)(A).
Subsec. (e)(3)(C)(ii).
1981—Subsec. (d)(1).
Subsecs. (e), (f).
1976—Subsecs. (b)(5), (c).
1969—Subsec. (a).
Subsec. (b).
Subsecs. (c) to (e).
Amendment by
"(1)
"(2)
"(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)."
Amendment by
"(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."
For provisions that nothing in amendment by section 11801(a)(17), (c)(7) of
If a shareholder sells or otherwise disposes of section 306 stock (as defined in subsection (c))—
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)
If the disposition is a redemption, the amount realized shall be treated as a distribution of property to which section 301 applies.
Subsection (a) shall not apply—
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).
If the disposition is a redemption and paragraph (3) or (4) of section 302(b) applies.
If the section 306 stock is redeemed in a distribution in complete liquidation to which part II (sec. 331 and following) applies.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
(Aug. 16, 1954, ch. 736,
2003—Subsec. (a)(1)(D).
1990—Subsec. (h).
1984—Subsec. (b)(1).
Subsec. (c)(3).
Subsec. (c)(4).
1982—Subsec. (b)(1)(B).
Subsec. (b)(2).
Subsec. (c)(3).
Subsec. (c)(4).
1980—Subsecs. (a)(3), (b)(5).
1978—Subsec. (a)(3).
Subsec. (b)(5).
1976—Subsec. (a)(1)(A), (B)(i).
Subsec. (b)(4).
Subsec. (f).
Amendment by
Amendment by
Amendment by section 222(e)(1)(A), (2) of
Amendment by section 226(b) of
Amendment by
Amendment by section 1901(b)(3)(J) of
For provisions that nothing in amendment by
If a shareholder in a corporation receives its stock or rights to acquire its stock (referred to in this subsection as "new stock") in a distribution to which section 305(a) applies, then the basis of such new stock and of the stock with respect to which it is distributed (referred to in this section as "old stock"), respectively, shall, in the shareholder's hands, be determined by allocating between the old stock and the new stock the adjusted basis of the old stock. Such allocation shall be made under regulations prescribed by the Secretary.
If—
(A) a corporation distributes rights to acquire its stock to a shareholder in a distribution to which section 305(a) applies, and
(B) the fair market value of such rights at the time of the distribution is less than 15 percent of the fair market value of the old stock at such time,
then subsection (a) shall not apply and the basis of such rights shall be zero, unless the taxpayer elects under paragraph (2) of this subsection to determine the basis of the old stock and of the stock rights under the method of allocation provided in subsection (a).
The election referred to in paragraph (1) shall be made in the return filed within the time prescribed by law (including extensions thereof) for the taxable year in which such rights were received. Such election shall be made in such manner as the Secretary may by regulations prescribe, and shall be irrevocable when made.
For basis of stock and stock rights distributed before June 22, 1954, see section 1052.
(Aug. 16, 1954, ch. 736,
1976—Subsecs. (a), (b)(2).