PART III—CORPORATE ORGANIZATIONS AND REORGANIZATIONS
Part Referred to in Other Sections
This part is referred to in
1 So in original. Does not conform to subpart heading.
Subpart A—Corporate Organizations
§351. Transfer to corporation controlled by transferor
(a) General rule
No gain or loss shall be recognized if property is transferred to a corporation by one or more persons solely in exchange for stock in such corporation and immediately after the exchange such person or persons are in control (as defined in section 368(c)) of the corporation.
(b) Receipt of property
If subsection (a) would apply to an exchange but for the fact that there is received, in addition to the stock permitted to be received under subsection (a), other property or money, then—
(1) gain (if any) to such recipient shall be recognized, but not in excess of—
(A) the amount of money received, plus
(B) the fair market value of such other property received; and
(2) no loss to such recipient shall be recognized.
(c) Special rule
In determining control, for purposes of this section, the fact that any corporate transferor distributes part or all of the stock which it receives in the exchange to its shareholders shall not be taken into account.
(d) Services, certain indebtedness, and accrued interest not treated as property
For purposes of this section, stock issued for—
(1) services,
(2) indebtedness of the transferee corporation which is not evidenced by a security, or
(3) interest on indebtedness of the transferee corporation which accrued on or after the beginning of the transferor's holding period for the debt,
shall not be considered as issued in return for property.
(e) Exceptions
This section shall not apply to—
(1) Transfer of property to an investment company
A transfer of property to an investment company.
(2) Title 11 or similar case
A transfer of property of a debtor pursuant to a plan while the debtor is under the jurisdiction of a court in a title 11 or similar case (within the meaning of section 368(a)(3)(A)), to the extent that the stock received in the exchange is used to satisfy the indebtedness of such debtor.
(f) Treatment of controlled corporation
If—
(1) property is transferred to a corporation (hereinafter in this subsection referred to as the "controlled corporation") in an exchange with respect to which gain or loss is not recognized (in whole or in part) to the transferor under this section, and
(2) such exchange is not in pursuance of a plan of reorganization,
section 311 shall apply to any transfer in such exchange by the controlled corporation in the same manner as if such transfer were a distribution to which subpart A of part I applies.
(g) Cross references
(1) For special rule where another party to the exchange assumes a liability, or acquires property subject to a liability, see section 357.
(2) For the basis of stock or property received in an exchange to which this section applies, see sections 358 and 362.
(3) For special rule in the case of an exchange described in this section but which results in a gift, see section 2501 and following.
(4) For special rule in the case of an exchange described in this section but which has the effect of the payment of compensation by the corporation or by a transferor, see section 61(a)(1).
(5) For coordination of this section with section 304, see section 304(b)(3).
(Aug. 16, 1954, ch. 736,
Amendments
1990—Subsec. (e)(2).
1989—Subsec. (a).
Subsecs. (b), (d), (e)(2).
Subsec. (g)(2).
1988—Subsecs. (f), (g).
1982—Subsec. (f)(5).
1980—Subsec. (a).
Subsec. (d).
Subsec. (e).
Subsec. (f).
1976—Subsec. (a).
Subsec. (d).
1966—Subsec. (a).
Subsecs. (d), (e).
Effective Date of 1989 Amendment
Section 7203(c) of
"(1)
"(2)
"(3)
Effective Date of 1988 Amendment
Section 1018(d)(5)(G) of
Effective Date of 1982 Amendment
Amendment by
Effective Date of 1980 Amendment
Amendment by
Effective Date of 1976 Amendment
Section 1901(a)(48)(C) of
Effective Date of 1966 Amendment
Section 203(c) of
Cross References
Assumption of liability, see
Basis of property received in liquidations, purchase defined, see
Basis to corporations, see
Basis to distributees, see
Foreign corporations, see
Section Referred to in Other Sections
This section is referred to in
Subpart B—Effects on Shareholders and Security Holders
§354. Exchanges of stock and securities in certain reorganizations
(a) General rule
(1) In general
No gain or loss shall be recognized if stock or securities in a corporation a party to a reorganization are, in pursuance of the plan of reorganization, exchanged solely for stock or securities in such corporation or in another corporation a party to the reorganization.
(2) Limitation
(A) Excess principal amount
Paragraph (1) shall not apply if—
(i) the principal amount of any such securities received exceeds the principal amount of any such securities surrendered, or
(ii) any such securities are received and no such securities are surrendered.
(B) Property attributable to accrued interest
Neither paragraph (1) nor so much of section 356 as relates to paragraph (1) shall apply to the extent that any stock, securities, or other property received is attributable to interest which has accrued on securities on or after the beginning of the holder's holding period.
(3) Cross references
(A) For treatment of the exchange if any property is received which is not permitted to be received under this subsection (including an excess principal amount of securities received over securities surrendered, but not including property to which paragraph (2)(B) applies), see section 356.
(B) For treatment of accrued interest in the case of an exchange described in paragraph (2)(B), see section 61.
(b) Exception
(1) In general
Subsection (a) shall not apply to an exchange in pursuance of a plan of reorganization within the meaning of subparagraph (D) or (G) of section 368(a)(1), unless—
(A) the corporation to which the assets are transferred acquires substantially all of the assets of the transferor of such assets; and
(B) the stock, securities, and other properties received by such transferor, as well as the other properties of such transferor, are distributed in pursuance of the plan of reorganization.
(2) Cross reference
For special rules for certain exchanges in pursuance of plans of reorganization within the meaning of subparagraph (D) or (G) of section 368(a)(1), see section 355.
(c) Certain railroad reorganizations
Notwithstanding any other provision of this subchapter, subsection (a)(1) (and so much of section 356 as relates to this section) shall apply with respect to a plan of reorganization (whether or not a reorganization within the meaning of section 368(a)) for a railroad confirmed under
(Aug. 16, 1954, ch. 736,
Amendments
1990—Subsec. (d).
1980—Subsec. (a)(2).
Subsec. (a)(3).
Subsec. (b).
Subsec. (c).
1978—Subsec. (c).
1976—Subsec. (d).
Effective Date of 1980 Amendment
Amendment by section 4(e)(1) of
Amendment by section 4(h)(1) of
Amendment by section 6(i)(2) of
Effective Date of 1976 Amendment
Section 2 of
Savings Provision
For provisions that nothing in amendment by
Abolition of United States Railway Association and Transfer of Functions
United States Railway Association abolished effective Apr. 1, 1987, all powers, duties, rights, and obligations of Association relating to Consolidated Rail Corporation under Regional Rail Reorganization Act of 1973 (
Cross References
Basis to distributees, see
Carryovers in corporate acquisitions, see
Complete liquidations of subsidiaries, liquidations to which section applies, see
Foreign corporations, see
Section Referred to in Other Sections
This section is referred to in
§355. Distribution of stock and securities of a controlled corporation
(a) Effect on distributees
(1) General rule
If—
(A) a corporation (referred to in this section as the "distributing corporation")—
(i) distributes to a shareholder, with respect to its stock, or
(ii) distributes to a security holder, in exchange for its securities,
solely stock or securities of a corporation (referred to in this section as "controlled corporation") which it controls immediately before the distribution,
(B) the transaction was not used principally as a device for the distribution of the earnings and profits of the distributing corporation or the controlled corporation or both (but the mere fact that subsequent to the distribution stock or securities in one or more of such corporations are sold or exchanged by all or some of the distributees (other than pursuant to an arrangement negotiated or agreed upon prior to such distribution) shall not be construed to mean that the transaction was used principally as such a device),
(C) the requirements of subsection (b) (relating to active businesses) are satisfied, and
(D) as part of the distribution, the distributing corporation distributes—
(i) all of the stock and securities in the controlled corporation held by it immediately before the distribution, or
(ii) an amount of stock in the controlled corporation constituting control within the meaning of section 368(c), and it is established to the satisfaction of the Secretary that the retention by the distributing corporation of stock (or stock and securities) in the controlled corporation was not in pursuance of a plan having as one of its principal purposes the avoidance of Federal income tax,
then no gain or loss shall be recognized to (and no amount shall be includible in the income of) such shareholder or security holder on the receipt of such stock or securities.
(2) Non pro rata distributions, etc.
Paragraph (1) shall be applied without regard to the following:
(A) whether or not the distribution is pro rata with respect to all of the shareholders of the distributing corporation,
(B) whether or not the shareholder surrenders stock in the distributing corporation, and
(C) whether or not the distribution is in pursuance of a plan of reorganization (within the meaning of section 368(a)(1)(D)).
(3) Limitations
(A) Excess principal amount
Paragraph (1) shall not apply if—
(i) the principal amount of the securities in the controlled corporation which are received exceeds the principal amount of the securities which are surrendered in connection with such distribution, or
(ii) securities in the controlled corporation are received and no securities are surrendered in connection with such distribution.
(B) Stock acquired in taxable transactions within 5 years treated as boot
For purposes of this section (other than paragraph (1)(D) of this subsection) and so much of section 356 as relates to this section, stock of a controlled corporation acquired by the distributing corporation by reason of any transaction—
(i) which occurs within 5 years of the distribution of such stock, and
(ii) in which gain or loss was recognized in whole or in part,
shall not be treated as stock of such controlled corporation, but as other property.
(C) Property attributable to accrued interest
Neither paragraph (1) nor so much of section 356 as relates to paragraph (1) shall apply to the extent that any stock, securities, or other property received is attributable to interest which has accrued on securities on or after the beginning of the holder's holding period.
(4) Cross references
(A) For treatment of the exchange if any property is received which is not permitted to be received under this subsection (including an excess principal amount of securities received over securities surrendered, but not including property to which paragraph (3)(C) applies), see section 356.
(B) For treatment of accrued interest in the case of an exchange described in paragraph (3)(C), see section 61.
(b) Requirements as to active business
(1) In general
Subsection (a) shall apply only if either—
(A) the distributing corporation, and the controlled corporation (or, if stock of more than one controlled corporation is distributed, each of such corporations), is engaged immediately after the distribution in the active conduct of a trade or business, or
(B) immediately before the distribution, the distributing corporation had no assets other than stock or securities in the controlled corporations and each of the controlled corporations is engaged immediately after the distribution in the active conduct of a trade or business.
(2) Definition
For purposes of paragraph (1), a corporation shall be treated as engaged in the active conduct of a trade or business if and only if—
(A) it is engaged in the active conduct of a trade or business, or substantially all of its assets consist of stock and securities of a corporation controlled by it (immediately after the distribution) which is so engaged,
(B) such trade or business has been actively conducted throughout the 5-year period ending on the date of the distribution,
(C) such trade or business was not acquired within the period described in subparagraph (B) in a transaction in which gain or loss was recognized in whole or in part, and
(D) control of a corporation which (at the time of acquisition of control) was conducting such trade or business—
(i) was not acquired by any distributee corporation directly (or through 1 or more corporations, whether through the distributing corporation or otherwise) within the period described in subparagraph (B) and was not acquired by the distributing corporation directly (or through 1 or more corporations) within such period, or
(ii) was so acquired by any such corporation within such period, but, in each case in which such control was so acquired, it was so acquired, only by reason of transactions in which gain or loss was not recognized in whole or in part, or only by reason of such transactions combined with acquisitions before the beginning of such period.
For purposes of subparagraph (D), all distributee corporations which are members of the same affiliated group (as defined in section 1504(a) without regard to section 1504(b)) shall be treated as 1 distributee corporation.
(c) Taxability of corporation on distribution
(1) In general
Except as provided in paragraph (2), no gain or loss shall be recognized to a corporation on any distribution to which this section (or so much of section 356 as relates to this section) applies and which is not in pursuance of a plan of reorganization.
(2) Distribution of appreciated property
(A) In general
If—
(i) in a distribution referred to in paragraph (1), the corporation distributes property other than qualified property, and
(ii) the fair market value of such property exceeds its adjusted basis (in the hands of the distributing corporation),
then gain shall be recognized to the distributing corporation as if such property were sold to the distributee at its fair market value.
(B) Qualified property
For purposes of subparagraph (A), the term "qualified property" means any stock or securities in the controlled corporation.
(C) Treatment of liabilities
If any property distributed in the distribution referred to in paragraph (1) is subject to a liability or the shareholder assumes a liability of the distributing corporation in connection with the distribution, then, for purposes of subparagraph (A), the fair market value of such property shall be treated as not less than the amount of such liability.
(3) Coordination with sections 311 and 336(a)
Sections 311 and 336(a) shall not apply to any distribution referred to in paragraph (1).
(d) Recognition of gain on certain distributions of stock or securities in controlled corporation
(1) In general
In the case of a disqualified distribution, any stock or securities in the controlled corporation shall not be treated as qualified property for purposes of subsection (c)(2) of this section or section 361(c)(2).
(2) Disqualified distribution
For purposes of this subsection, the term "disqualified distribution" means any distribution to which this section (or so much of section 356 as relates to this section) applies if, immediately after the distribution—
(A) any person holds disqualified stock in the distributing corporation which constitutes a 50-percent or greater interest in such corporation, or
(B) any person holds disqualified stock in the controlled corporation (or, if stock of more than 1 controlled corporation is distributed, in any controlled corporation) which constitutes a 50-percent or greater interest in such corporation.
(3) Disqualified stock
For purposes of this subsection, the term "disqualified stock" means—
(A) any stock in the distributing corporation acquired by purchase after October 9, 1990, and during the 5-year period ending on the date of the distribution, and
(B) any stock in any controlled corporation—
(i) acquired by purchase after October 9, 1990, and during the 5-year period ending on the date of the distribution, or
(ii) received in the distribution to the extent attributable to distributions on—
(I) stock described in subparagraph (A), or
(II) any securities in the distributing corporation acquired by purchase after October 9, 1990, and during the 5-year period ending on the date of the distribution.
(4) 50-percent or greater interest
For purposes of this subsection, the term "50-percent or greater interest" means stock possessing at least 50 percent of the total combined voting power of all classes of stock entitled to vote or at least 50 percent of the total value of shares of all classes of stock.
(5) Purchase
For purposes of this subsection—
(A) In general
Except as otherwise provided in this paragraph, the term "purchase" means any acquisition but only if—
(i) the basis of the property acquired in the hands of the acquirer is not determined (I) in whole or in part by reference to the adjusted basis of such property in the hands of the person from whom acquired, or (II) under section 1014(a), and
(ii) the property is not acquired in an exchange to which section 351, 354, 355, or 356 applies.
(B) Certain section 351 exchanges treated as purchases
The term "purchase" includes any acquisition of property in an exchange to which section 351 applies to the extent such property is acquired in exchange for—
(i) any cash or cash item,
(ii) any marketable stock or security, or
(iii) any debt of the transferor.
(C) Carryover basis transactions
If—
(i) any person acquires property from another person who acquired such property by purchase (as determined under this paragraph with regard to this subparagraph), and
(ii) the adjusted basis of such property in the hands of such acquirer is determined in whole or in part by reference to the adjusted basis of such property in the hands of such other person,
such acquirer shall be treated as having acquired such property by purchase on the date it was so acquired by such other person.
(6) Special rule where substantial diminution of risk
(A) In general
If this paragraph applies to any stock or securities for any period, the running of any 5-year period set forth in subparagraph (A) or (B) of paragraph (3) (whichever applies) shall be suspended during such period.
(B) Property to which suspension applies
This paragraph applies to any stock or securities for any period during which the holder's risk of loss with respect to such stock or securities, or with respect to any portion of the activities of the corporation, is (directly or indirectly) substantially diminished by—
(i) an option,
(ii) a short sale,
(iii) any special class of stock, or
(iv) any other device or transaction.
(7) Aggregation rules
(A) In general
For purposes of this subsection, a person and all persons related to such person (within the meaning of 1 267(b) or 707(b)(1)) shall be treated as one person.
(B) Persons acting pursuant to plans or arrangements
If two or more persons act pursuant to a plan or arrangement with respect to acquisitions of stock or securities in the distributing corporation or controlled corporation, such persons shall be treated as one person for purposes of this subsection.
(8) Attribution from entities
(A) In general
Paragraph (2) of section 318(a) shall apply in determining whether a person holds stock or securities in any corporation (determined by substituting "10 percent" for "50 percent" in subparagraph (C) of such paragraph (2) and by treating any reference to stock as including a reference to securities).
(B) Deemed purchase rule
If—
(i) any person acquires by purchase an interest in any entity, and
(ii) such person is treated under subparagraph (A) as holding any stock or securities by reason of holding such interest,
such stock or securities shall be treated as acquired by purchase by such person on the later of the date of the purchase of the interest in such entity or the date such stock or securities are acquired by purchase by such entity.
(9) Regulations
The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subsection, including—
(A) regulations to prevent the avoidance of the purposes of this subsection through the use of related persons, intermediaries, pass-thru entities, options, or other arrangements, and
(B) regulations modifying the definition of the term "purchase".
(Aug. 16, 1954, ch. 736,
Amendments
1990—Subsec. (c).
"(1)
"(2)
"(A)
"(i) in a distribution referred to in paragraph (1), the corporation distributes property other than stock or securities in the controlled corporation, and
"(ii) the fair market value of such property exceeds its adjusted basis (in the hands of the distributing corporation),
then gain shall be recognized to the distributing corporation as if such property were sold to the distributee at its fair market value.
"(B)
"(3)
"(1) to which this section (or so much of section 356 as relates to this section) applies, and
"(2) which is not in pursuance of a plan of reorganization,
in the same manner as if such distribution were a distribution to which subpart A of part I applies; except that subsection (b) of section 311 shall not apply to any distribution of stock or securities in the controlled corporation."
Subsec. (d).
1988—Subsec. (b)(2)(D)(i), (ii).
"(i) was not acquired by any distributee corporation directly (or through 1 or more corporations, whether through the distributing corporation or otherwise) within the period described in subparagraph (B), or
"(ii) was so acquired such distributee corporation within such period, but such control was so acquired only by reason of transactions in which gain or loss was not recognized in whole or in part, or only by reason of such transactions combined with acquisitions before the beginning of such period."
Subsec. (c).
1987—Subsec. (b)(2)(D).
Subsec. (b)(2)(D)(i).
Subsec. (b)(2)(D)(ii).
1980—Subsec. (a)(3).
Subsec. (a)(4).
1976—Subsec. (a)(1)(D)(ii).
Effective Date of 1990 Amendment
Section 11321(c) of
"(1)
"(2)
"(3)
"(A) such acquisition is pursuant to a written binding contract in effect on October 9, 1990, and at all times thereafter before such acquisition,
"(B) such acquisition is pursuant to a transaction which was described in documents filed with the Securities and Exchange Commission on or before October 9, 1990, or
"(C) such acquisition is pursuant to a transaction—
"(i) the material terms of which were described in a written public announcement on or before October 9, 1990,
"(ii) which was the subject of a prior filing with the Securities and Exchange Commission, and
"(iii) which is the subject of a subsequent filing with the Securities and Exchange Commission before January 1, 1991."
Amendment by section 11702(e)(2) of
Effective Date of 1988 Amendment
Amendment by section 1018(d)(5)(C) of
Amendment by section 2004(k)(1) of
Effective Date of 1987 Amendment
Amendment by
Effective Date of 1980 Amendment
Amendment by
Cross References
Allocation of earnings and profits in distributions or exchanges to which this section applies, see
Basis to distributees, see
Capital gains and losses, distribution to which this section applies to be treated as an exchange, see
Section Referred to in Other Sections
This section is referred to in
1 So in original. Probably should be followed by "section".
§356. Receipt of additional consideration
(a) Gain on exchanges
(1) Recognition of gain
If—
(A) section 354 or 355 would apply to an exchange but for the fact that
(B) the property received in the exchange consists not only of property permitted by section 354 or 355 to be received without the recognition of gain but also of other property or money,
then the gain, if any, to the recipient shall be recognized, but in an amount not in excess of the sum of such money and the fair market value of such other property.
(2) Treatment as dividend
If an exchange is described in paragraph (1) but has the effect of the distribution of a dividend (determined with the application of section 318(a)), then there shall be treated as a dividend to each distributee such an amount of the gain recognized under paragraph (1) as is not in excess of his ratable share of the undistributed earnings and profits of the corporation accumulated after February 28, 1913. The remainder, if any, of the gain recognized under paragraph (1) shall be treated as gain from the exchange of property.
(b) Additional consideration received in certain distributions
If—
(1) section 355 would apply to a distribution but for the fact that
(2) the property received in the distribution consists not only of property permitted by section 355 to be received without the recognition of gain, but also of other property or money,
then an amount equal to the sum of such money and the fair market value of such other property shall be treated as a distribution of property to which section 301 applies.
(c) Loss
If—
(1) section 354 would apply to an exchange or section 355 would apply to an exchange or distribution, but for the fact that
(2) the property received in the exchange or distribution consists not only of property permitted by section 354 or 355 to be received without the recognition of gain or loss, but also of other property or money,
then no loss from the exchange or distribution shall be recognized.
(d) Securities as other property
For purposes of this section—
(1) In general
Except as provided in paragraph (2), the term "other property" includes securities.
(2) Exceptions
(A) Securities with respect to which nonrecognition of gain would be permitted
The term "other property" does not include securities to the extent that, under section 354 or 355, such securities would be permitted to be received without the recognition of gain.
(B) Greater principal amount in section 354 exchange
If—
(i) in an exchange described in section 354 (other than subsection (c) thereof), securities of a corporation a party to the reorganization are surrendered and securities of any corporation a party to the reorganization are received, and
(ii) the principal amount of such securities received exceeds the principal amount of such securities surrendered,
then, with respect to such securities received, the term "other property" means only the fair market value of such excess. For purposes of this subparagraph and subparagraph (C) if no securities are surrendered, the excess shall be the entire principal amount of the securities received.
(C) Greater principal amount in section 355 transaction
If, in an exchange or distribution described in section 355, the principal amount of the securities in the controlled corporation which are received exceeds the principal amount of the securities in the distributing corporation which are surrendered, then, with respect to such securities received, the term "other property" means only the fair market value of such excess.
(e) Exchanges for section 306 stock
Notwithstanding any other provision of this section, to the extent that any of the other property (or money) is received in exchange for section 306 stock, an amount equal to the fair market value of such other property (or the amount of such money) shall be treated as a distribution of property to which section 301 applies.
(f) Transactions involving gift or compensation
For special rules for a transaction described in section 354, 355, or this section, but which—
(1) results in a gift, see section 2501 and following, or
(2) has the effect of the payment of compensation, see section 61(a)(1).
(Aug. 16, 1954, ch. 736,
Amendments
1990—Subsec. (d)(2)(B)(i).
1982—Subsec. (a)(2).
1976—Subsec. (d)(2)(B)(i).
Effective Date of 1982 Amendment
Section 227(c)(2) of
Effective Date of 1976 Amendment
Amendment by
Savings Provision
For provisions that nothing in amendment by
Cross References
Basis to distributees, see
Capital gains and losses, distributions under this section relating to section 355 to be treated as exchanges, see
Definitions relating to corporate reorganizations, see
Effect on earnings and profits, allocation in corporate separations, see
Foreign corporations, see
Section Referred to in Other Sections
This section is referred to in
§357. Assumption of liability
(a) General rule
Except as provided in subsections (b) and (c), if—
(1) the taxpayer receives property which would be permitted to be received under section 351 or 361 without the recognition of gain if it were the sole consideration, and
(2) as part of the consideration, another party to the exchange assumes a liability of the taxpayer, or acquires from the taxpayer property subject to a liability,
then such assumption or acquisition shall not be treated as money or other property, and shall not prevent the exchange from being within the provisions of section 351 or 361, as the case may be.
(b) Tax avoidance purpose
(1) In general
If, taking into consideration the nature of the liability and the circumstances in the light of which the arrangement for the assumption or acquisition was made, it appears that the principal purpose of the taxpayer with respect to the assumption or acquisition described in subsection (a)—
(A) was a purpose to avoid Federal income tax on the exchange, or
(B) if not such purpose, was not a bona fide business purpose,
then such assumption or acquisition (in the total amount of the liability assumed or acquired pursuant to such exchange) shall, for purposes of section 351 or 361 (as the case may be), be considered as money received by the taxpayer on the exchange.
(2) Burden of proof
In any suit or proceeding where the burden is on the taxpayer to prove such assumption or acquisition is not to be treated as money received by the taxpayer, such burden shall not be considered as sustained unless the taxpayer sustains such burden by the clear preponderance of the evidence.
(c) Liabilities in excess of basis
(1) In general
In the case of an exchange—
(A) to which section 351 applies, or
(B) to which section 361 applies by reason of a plan of reorganization within the meaning of section 368(a)(1)(D),
if the sum of the amount of the liabilities assumed, plus the amount of the liabilities to which the property is subject, exceeds the total of the adjusted basis of the property transferred pursuant to such exchange, then such excess shall be considered as a gain from the sale or exchange of a capital asset or of property which is not a capital asset, as the case may be.
(2) Exceptions
Paragraph (1) shall not apply to any exchange—
(A) to which subsection (b)(1) of this section applies, or
(B) which is pursuant to a plan of reorganization within the meaning of section 368(a)(1)(G) where no former shareholder of the transferor corporation receives any consideration for his stock.
(3) Certain liabilities excluded
(A) In general
If a taxpayer transfers, in an exchange to which section 351 applies, a liability the payment of which either—
(i) would give rise to a deduction, or
(ii) would be described in section 736(a),
then, for purposes of paragraph (1), the amount of such liability shall be excluded in determining the amount of liabilities assumed or to which the property transferred is subject.
(B) Exception
Subparagraph (A) shall not apply to any liability to the extent that the incurrence of the liability resulted in the creation of, or an increase in, the basis of any property.
(Aug. 16, 1954, ch. 736,
Amendments
1990—Subsecs. (a), (b)(1).
Subsec. (c)(2).
1980—Subsec. (c)(2)(C).
Subsec. (c)(3)(A).
1978—Subsec. (c)(3).
1956—Subsec. (a). Act June 29, 1956, §2(1), substituted "371, or 374" for "or 371" in two places.
Subsec. (b). Act June 29, 1956, §2(1), substituted "371, or 374" for "or 371".
Subsec. (c)(2)(B). Act June 29, 1956, §2(2), substituted "371 or 374" for "371".
Effective Date of 1980 Amendments
Amendment by
Amendment by
Effective Date of 1978 Amendment
Section 365(c) of
Savings Provision
For provisions that nothing in amendment by
Section Referred to in Other Sections
This section is referred to in
§358. Basis to distributees
(a) General rule
In the case of an exchange to which section 351, 354, 355, 356, or 361 applies—
(1) Nonrecognition property
The basis of the property permitted to be received under such section without the recognition of gain or loss shall be the same as that of the property exchanged—
(A) decreased by—
(i) the fair market value of any other property (except money) received by the taxpayer,
(ii) the amount of any money received by the taxpayer, and
(iii) the amount of loss to the taxpayer which was recognized on such exchange, and
(B) increased by—
(i) the amount which was treated as a dividend, and
(ii) the amount of gain to the taxpayer which was recognized on such exchange (not including any portion of such gain which was treated as a dividend).
(2) Other property
The basis of any other property (except money) received by the taxpayer shall be its fair market value.
(b) Allocation of basis
(1) In general
Under regulations prescribed by the Secretary, the basis determined under subsection (a)(1) shall be allocated among the properties permitted to be received without the recognition of gain or loss.
(2) Special rule for section 355
In the case of an exchange to which section 355 (or so much of section 356 as relates to section 355) applies, then in making the allocation under paragraph (1) of this subsection, there shall be taken into account not only the property so permitted to be received without the recognition of gain or loss, but also the stock or securities (if any) of the distributing corporation which are retained, and the allocation of basis shall be made among all such properties.
(c) Section 355 transactions which are not exchanges
For purposes of this section, a distribution to which section 355 (or so much of section 356 as relates to section 355) applies shall be treated as an exchange, and for such purposes the stock and securities of the distributing corporation which are retained shall be treated as surrendered, and received back, in the exchange.
(d) Assumption of liability
(1) In general
Where, as part of the consideration to the taxpayer, another party to the exchange assumed a liability of the taxpayer or acquired from the taxpayer property subject to a liability, such assumption or acquisition (in the amount of the liability) shall, for purposes of this section, be treated as money received by the taxpayer on the exchange.
(2) Exception
Paragraph (1) shall not apply to the amount of any liability excluded under section 357(c)(3).
(e) Exception
This section shall not apply to property acquired by a corporation by the exchange of its stock or securities (or the stock or securities of a corporation which is in control of the acquiring corporation) as consideration in whole or in part for the transfer of the property to it.
(f) Definition of nonrecognition property in case of section 361 exchange
For purposes of this section, the property permitted to be received under section 361 without the recognition of gain or loss shall be treated as consisting only of stock or securities in another corporation a party to the reorganization.
(Aug. 16, 1954, ch. 736,
Amendments
1990—Subsec. (a).
Subsec. (b)(3).
1988—Subsec. (f).
1978—Subsec. (d).
1976—Subsec. (a).
Subsec. (b)(1), (3).
1968—Subsec. (e).
1958—Subsec. (a)(1)(A)(iii).
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1978 Amendment
Amendment by
Effective Date of 1976 Amendment
Amendment by
Effective Date of 1968 Amendment
Section 2(c) of
Effective Date of 1958 Amendment
Section 21(b) of
Savings Provision
For provisions that nothing in amendment by
Abolition of United States Railway Association and Transfer of Functions
United States Railway Association abolished effective Apr. 1, 1987, all powers, duties, rights, and obligations of Association relating to Consolidated Rail Corporation under Regional Rail Reorganization Act of 1973 (
Section Referred to in Other Sections
This section is referred to in
Subpart C—Effects on Corporation
Amendments
1988—
1986—
1976—
§361. Nonrecognition of gain or loss to corporations; treatment of distributions
(a) General rule
No gain or loss shall be recognized to a corporation if such corporation is a party to a reorganization and exchanges property, in pursuance of the plan of reorganization, solely for stock or securities in another corporation a party to the reorganization.
(b) Exchanges not solely in kind
(1) Gain
If subsection (a) would apply to an exchange but for the fact that the property received in exchange consists not only of stock or securities permitted by subsection (a) to be received without the recognition of gain, but also of other property or money, then—
(A) Property distributed
If the corporation receiving such other property or money distributes it in pursuance of the plan of reorganization, no gain to the corporation shall be recognized from the exchange, but
(B) Property not distributed
If the corporation receiving such other property or money does not distribute it in pursuance of the plan of reorganization, the gain, if any, to the corporation shall be recognized.
The amount of gain recognized under subparagraph (B) shall not exceed the sum of the money and the fair market value of the other property so received which is not so distributed.
(2) Loss
If subsection (a) would apply to an exchange but for the fact that the property received in exchange consists not only of property permitted by subsection (a) to be received without the recognition of gain or loss, but also of other property or money, then no loss from the exchange shall be recognized.
(3) Treatment of transfers to creditors
For purposes of paragraph (1), any transfer of the other property or money received in the exchange by the corporation to its creditors in connection with the reorganization shall be treated as a distribution in pursuance of the plan of reorganization. The Secretary may prescribe such regulations as may be necessary to prevent avoidance of tax through abuse of the preceding sentence or subsection (c)(3).
(c) Treatment of distributions
(1) In general
Except as provided in paragraph (2), no gain or loss shall be recognized to a corporation a party to a reorganization on the distribution to its shareholders of property in pursuance of the plan of reorganization.
(2) Distributions of appreciated property
(A) In general
If—
(i) in a distribution referred to in paragraph (1), the corporation distributes property other than qualified property, and
(ii) the fair market value of such property exceeds its adjusted basis (in the hands of the distributing corporation),
then gain shall be recognized to the distributing corporation as if such property were sold to the distributee at its fair market value.
(B) Qualified property
For purposes of this subsection, the term "qualified property" means—
(i) any stock in (or right to acquire stock in) the distributing corporation or obligation of the distributing corporation, or
(ii) any stock in (or right to acquire stock in) another corporation which is a party to the reorganization or obligation of another corporation which is such a party if such stock (or right) or obligation is received by the distributing corporation in the exchange.
(C) Treatment of liabilities
If any property distributed in the distribution referred to in paragraph (1) is subject to a liability or the shareholder assumes a liability of the distributing corporation in connection with the distribution, then, for purposes of subparagraph (A), the fair market value of such property shall be treated as not less than the amount of such liability.
(3) Treatment of certain transfers to creditors
For purposes of this subsection, any transfer of qualified property by the corporation to its creditors in connection with the reorganization shall be treated as a distribution to its shareholders pursuant to the plan of reorganization.
(4) Coordination with other provisions
Section 311 and subpart B of part II of this subchapter shall not apply to any distribution referred to in paragraph (1).
(5) Cross reference
For provision providing for recognition of gain in certain distributions, see section 355(d).
(Aug. 16, 1954, ch. 736,
Amendments
1990—Subsec. (c)(5).
1988—
1986—
Effective Date of 1990 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Section 1804(g)(4) of
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 [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Cross References
Assumption of liability, see
Basis to distributees, see
Carryovers in corporate acquisitions, see
Complete liquidations of subsidiaries, exchange described in this section, see
Foreign corporations, see
Section Referred to in Other Sections
This section is referred to in
§362. Basis to corporations
(a) Property acquired by issuance of stock or as paid-in surplus
If property was acquired on or after June 22, 1954, by a corporation—
(1) in connection with a transaction to which section 351 (relating to transfer of property to corporation controlled by transferor) applies, or
(2) as paid-in surplus or as a contribution to capital,
then the basis shall be the same as it would be in the hands of the transferor, increased in the amount of gain recognized to the transferor on such transfer.
(b) Transfers to corporations
If property was acquired by a corporation in connection with a reorganization to which this part applies, then the basis shall be the same as it would be in the hands of the transferor, increased in the amount of gain recognized to the transferor on such transfer. This subsection shall not apply if the property acquired consists of stock or securities in a corporation a party to the reorganization, unless acquired by the exchange of stock or securities of the transferee (or of a corporation which is in control of the transferee) as the consideration in whole or in part for the transfer.
(c) Special rule for certain contributions to capital
(1) Property other than money
Notwithstanding subsection (a)(2), if property other than money—
(A) is acquired by a corporation, on or after June 22, 1954, as a contribution to capital, and
(B) is not contributed by a shareholder as such,
then the basis of such property shall be zero.
(2) Money
Notwithstanding subsection (a)(2), if money—
(A) is received by a corporation, on or after June 22, 1954, as a contribution to capital, and
(B) is not contributed by a shareholder as such,
then the basis of any property acquired with such money during the 12-month period beginning on the day the contribution is received shall be reduced by the amount of such contribution. The excess (if any) of the amount of such contribution over the amount of the reduction under the preceding sentence shall be applied to the reduction (as of the last day of the period specified in the preceding sentence) of the basis of any other property held by the taxpayer. The particular properties to which the reductions required by this paragraph shall be allocated shall be determined under regulations prescribed by the Secretary.
(Aug. 16, 1954, ch. 736,
Amendments
1986—Subsec. (c)(3).
1976—Subsec. (c)(2)(B).
Subsec. (c)(3).
1968—Subsec. (b).
Effective Date of 1986 Amendment
Amendment by
Effective Date of 1976 Amendment
Amendment by section 2120(b) of
Effective Date of 1968 Amendment
Amendment by
Cross References
Basis to distributees, see
Contributions to capital of corporation, see
Exchange of stock for property, nonrecognition of gain or loss, see
Section Referred to in Other Sections
This section is referred to in
[§363. Repealed. Pub. L. 94–455, title XIX, §1901(a)(49), Oct. 4, 1976, 90 Stat. 1773 ]
Section, act Aug. 16, 1954, ch. 736,
Effective Date of Repeal
Repeal effective for taxable years beginning after Dec. 31, 1976, see section 1901(d) of
Subpart D—Special Rule; Definitions
§367. Foreign corporations
(a) Transfers of property from the United States
(1) General rule
If, in connection with any exchange described in section 332, 351, 354, 356, or 361, a United States person transfers property to a foreign corporation, such foreign corporation shall not, for purposes of determining the extent to which gain shall be recognized on such transfer, be considered to be a corporation.
(2) Exception for certain stock or securities
Except to the extent provided in regulations, paragraph (1) shall not apply to the transfer of stock or securities of a foreign corporation which is a party to the exchange or a party to the reorganization.
(3) Exception for transfers of certain property used in the active conduct of a trade or business
(A) In general
Except as provided in regulations prescribed by the Secretary, paragraph (1) shall not apply to any property transferred to a foreign corporation for use by such foreign corporation in the active conduct of a trade or business outside of the United States.
(B) Paragraph not to apply to certain property
Except as provided in regulations prescribed by the Secretary, subparagraph (A) shall not apply to any—
(i) property described in paragraph (1) or (3) of section 1221 (relating to inventory and copyrights, etc.),
(ii) installment obligations, accounts receivable, or similar property,
(iii) foreign currency or other property denominated in foreign currency,
(iv) intangible property (within the meaning of section 936(h)(3)(B)), or
(v) property with respect to which the transferor is a lessor at the time of the transfer, except that this clause shall not apply if the transferee was the lessee.
(C) Transfer of foreign branch with previously deducted losses
Except as provided in regulations prescribed by the Secretary, subparagraph (A) shall not apply to gain realized on the transfer of the assets of a foreign branch of a United States person to a foreign corporation in an exchange described in paragraph (1) to the extent that—
(i) the sum of losses—
(I) which were incurred by the foreign branch before the transfer, and
(II) with respect to which a deduction was allowed to the taxpayer, exceeds
(ii) the sum of—
(I) any taxable income of such branch for a taxable year after the taxable year in which the loss was incurred and through the close of the taxable year of the transfer, and
(II) the amount which is recognized under section 904(f)(3) on account of the transfer.
Any gain recognized by reason of the preceding sentence shall be treated for purposes of this chapter as income from sources outside the United States having the same character as such losses had.
(4) Special rule for transfer of partnership interests
Except as provided in regulations prescribed by the Secretary, a transfer by a United States person of an interest in a partnership to a foreign corporation in an exchange described in paragraph (1) shall, for purposes of this subsection, be treated as a transfer to such corporation of such person's pro rata share of the assets of the partnership.
(5) Paragraphs (2) and (3) not to apply to certain section 361 transactions
Paragraphs (2) and (3) shall not apply in the case of an exchange described in subsection (a) or (b) of section 361. Subject to such basis adjustments and such other conditions as shall be provided in regulations, the preceding sentence shall not apply if the transferor corporation is controlled (within the meaning of section 368(c)) by 5 or fewer domestic corporations. For purposes of the preceding sentence, all members of the same affiliated group (within the meaning of section 1504) shall be treated as 1 corporation.
(6) Secretary may exempt certain transactions from application of this subsection
Paragraph (1) shall not apply to the transfer of any property which the Secretary, in order to carry out the purposes of this subsection, designates by regulation.
(b) Other transfers
(1) Effect of section to be determined under regulations
In the case of any exchange described in section 332, 351, 354, 355, 356, or 361 in connection with which there is no transfer of property described in subsection (a)(1), a foreign corporation shall be considered to be a corporation except to the extent provided in regulations prescribed by the Secretary which are necessary or appropriate to prevent the avoidance of Federal income taxes.
(2) Regulations relating to sale or exchange of stock in foreign corporations
The regulations prescribed pursuant to paragraph (1) shall include (but shall not be limited to) regulations dealing with the sale or exchange of stock or securities in a foreign corporation by a United States person, including regulations providing—
(A) the circumstances under which—
(i) gain shall be recognized currently, or amounts included in gross income currently as a dividend, or both, or
(ii) gain or other amounts may be deferred for inclusion in the gross income of a shareholder (or his successor in interest) at a later date, and
(B) the extent to which adjustments shall be made to earnings and profits, basis of stock or securities, and basis of assets.
(c) Transactions to be treated as exchanges
(1) Section 355 distribution
For purposes of this section, any distribution described in section 355 (or so much of section 356 as relates to section 355) shall be treated as an exchange whether or not it is an exchange.
(2) Contribution of capital to controlled corporations
For purposes of this chapter, any transfer of property to a foreign corporation as a contribution to the capital of such corporation by one or more persons who, immediately after the transfer, own (within the meaning of section 318) stock possessing at least 80 percent of the total combined voting power of all classes of stock of such corporation entitled to vote shall be treated as an exchange of such property for stock of the foreign corporation equal in value to the fair market value of the property transferred.
(d) Special rules relating to transfers of intangibles
(1) In general
Except as provided in regulations prescribed by the Secretary, if a United States person transfers any intangible property (within the meaning of section 936(h)(3)(B)) to a foreign corporation in an exchange described in section 351 or 361—
(A) subsection (a) shall not apply to the transfer of such property, and
(B) the provisions of this subsection shall apply to such transfer.
(2) Transfer of intangibles treated as transfer pursuant to sale of contingent payments
(A) In general
If paragraph (1) applies to any transfer, the United States person transferring such property shall be treated as—
(i) having sold such property in exchange for payments which are contingent upon the productivity, use, or disposition of such property, and
(ii) receiving amounts which reasonably reflect the amounts which would have been received—
(I) annually in the form of such payments over the useful life of such property, or
(II) in the case of a disposition following such transfer (whether direct or indirect), at the time of the disposition.
The amounts taken into account under clause (ii) shall be commensurate with the income attributable to the intangible.
(B) Effect on earnings and profits
For purposes of this chapter, the earnings and profits of a foreign corporation to which the intangible property was transferred shall be reduced by the amount required to be included in the income of the transferor of the intangible property under subparagraph (A)(ii).
(C) Amounts received treated as United States source ordinary income
For purposes of this chapter, any amount included in gross income by reason of this subsection shall be treated as ordinary income from sources within the United States.
(e) Treatment of distributions described in section 355 or liquidations under section 332
(1) Distributions described in section 355
In the case of any distribution described in section 355 (or so much of section 356 as relates to section 355) by a domestic corporation to a person who is not a United States person, to the extent provided in regulations, gain shall be recognized under principles similar to the principles of this section.
(2) Liquidations under section 332
In the case of any liquidation to which section 332 applies, except as provided in regulations, subsections (a) and (b)(1) of section 337 shall not apply where the 80-percent distributee (as defined in section 337(c)) is a foreign corporation.
(Aug. 16, 1954, ch. 736,
Amendments
1990—Subsec. (a)(5).
1988—Subsec. (a)(5), (6).
1986—Subsec. (a)(1).
Subsec. (d)(2)(A).
Subsec. (e).
Subsec. (f).
1984—Subsec. (a).
Subsec. (d).
Subsecs. (e), (f).
1982—Subsecs. (d), (e).
1976—
1971—Subsec. (a).
Subsec. (b).
Subsec. (c).
Subsec. (d).
Effective Date of 1990 Amendment
Amendment by
Effective Date of 1988 Amendment
Section 1006(e)(13)(B) of
Effective Date of 1986 Amendment
Amendment by section 631(d)(1) of
Amendment by section 1231(e)(2) of
Amendment by section 1810(g)(1), (4) of
Effective Date of 1984 Amendment
Section 131(g) of
"(1)
"(2)
"(A)
"(B)
"(3)
Effective Date of 1982 Amendment
Amendment by
Effective Date of 1976 Amendment
Section 1042(e) of
"(1) The amendments made by this section (other than by subsection (d)) [amending this section and
"(2) In the case of any exchange described in section 367 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as in effect on December 31, 1974) in any taxable year beginning after December 31, 1962, and before the date of the enactment of this Act [Oct. 4, 1976], which does not involve the transfer of property to or from a United States person, a taxpayer shall have for purposes of such section until 183 days after the date of the enactment of this Act [Oct. 4, 1976] to file a request with the Secretary of the Treasury or his delegate seeking to establish to the satisfaction of the Secretary of the Treasury or his delegate that such exchange was not in pursuance of a plan having as one of its principal purposes the avoidance of Federal income taxes and that for purposes of such section a foreign corporation is to be treated as a foreign corporation."
Effective Date of 1971 Amendment
Section 1(c) of
Applicability of Subsection (e)(2)
Section 1006(e)(13)(C) of
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 [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Section Referred to in Other Sections
This section is referred to in
§368. Definitions relating to corporate reorganizations
(a) Reorganization
(1) In general
For purposes of parts I and II and this part, the term "reorganization" means—
(A) a statutory merger or consolidation;
(B) the acquisition by one corporation, in exchange solely for all or a part of its voting stock (or in exchange solely for all or a part of the voting stock of a corporation which is in control of the acquiring corporation), of stock of another corporation if, immediately after the acquisition, the acquiring corporation has control of such other corporation (whether or not such acquiring corporation had control immediately before the acquisition);
(C) the acquisition by one corporation, in exchange solely for all or a part of its voting stock (or in exchange solely for all or a part of the voting stock of a corporation which is in control of the acquiring corporation), of substantially all of the properties of another corporation, but in determining whether the exchange is solely for stock the assumption by the acquiring corporation of a liability of the other, or the fact that property acquired is subject to a liability, shall be disregarded;
(D) a transfer by a corporation of all or a part of its assets to another corporation if immediately after the transfer the transferor, or one or more of its shareholders (including persons who were shareholders immediately before the transfer), or any combination thereof, is in control of the corporation to which the assets are transferred; but only if, in pursuance of the plan, stock or securities of the corporation to which the assets are transferred are distributed in a transaction which qualifies under section 354, 355, or 356;
(E) a recapitalization;
(F) a mere change in identity, form, or place of organization of one corporation, however effected; or
(G) a transfer by a corporation of all or part of its assets to another corporation in a title 11 or similar case; but only if, in pursuance of the plan, stock or securities of the corporation to which the assets are transferred are distributed in a transaction which qualifies under section 354, 355, or 356.
(2) Special rules relating to paragraph (1)
(A) Reorganizations described in both paragraph (1)(C) and paragraph (1)(D)
If a transaction is described in both paragraph (1)(C) and paragraph (1)(D), then, for purposes of this subchapter (other than for purposes of subparagraph (C)), such transaction shall be treated as described only in paragraph (1)(D).
(B) Additional consideration in certain paragraph (1)(C) cases
If—
(i) one corporation acquires substantially all of the properties of another corporation,
(ii) the acquisition would qualify under paragraph (1)(C) but for the fact that the acquiring corporation exchanges money or other property in addition to voting stock, and
(iii) the acquiring corporation acquires, solely for voting stock described in paragraph (1)(C), property of the other corporation having a fair market value which is at least 80 percent of the fair market value of all of the property of the other corporation,
then such acquisition shall (subject to subparagraph (A) of this paragraph) be treated as qualifying under paragraph (1)(C). Solely for the purpose of determining whether clause (iii) of the preceding sentence applies, the amount of any liability assumed by the acquiring corporation, and the amount of any liability to which any property acquired by the acquiring corporation is subject, shall be treated as money paid for the property.
(C) Transfers of assets or stock to subsidiaries in certain paragraph (1)(A), (1)(B), (1)(C), and (1)(G) cases
A transaction otherwise qualifying under paragraph (1)(A), (1)(B), or (1)(C) shall not be disqualified by reason of the fact that part or all of the assets or stock which were acquired in the transaction are transferred to a corporation controlled by the corporation acquiring such assets or stock. A similar rule shall apply to a transaction otherwise qualifying under paragraph (1)(G) where the requirements of subparagraphs (A) and (B) of section 354(b)(1) are met with respect to the acquisition of the assets.
(D) Use of stock of controlling corporation in paragraph (1)(A) and (1)(G) cases
The acquisition by one corporation, in exchange for stock of a corporation (referred to in this subparagraph as "controlling corporation") which is in control of the acquiring corporation, of substantially all of the properties of another corporation shall not disqualify a transaction under paragraph (1)(A) or (1)(G) if—
(i) no stock of the acquiring corporation is used in the transaction, and
(ii) in the case of a transaction under paragraph (1)(A), such transaction would have qualified under paragraph (1)(A) had the merger been into the controlling corporation.
(E) Statutory merger using voting stock of corporation controlling merged corporation
A transaction otherwise qualifying under paragraph (1)(A) shall not be disqualified by reason of the fact that stock of a corporation (referred to in this subparagraph as the "controlling corporation") which before the merger was in control of the merged corporation is used in the transaction, if—
(i) after the transaction, the corporation surviving the merger holds substantially all of its properties and of the properties of the merged corporation (other than stock of the controlling corporation distributed in the transaction); and
(ii) in the transaction, former shareholders of the surviving corporation exchanged, for an amount of voting stock of the controlling corporation, an amount of stock in the surviving corporation which constitutes control of such corporation.
(F) Certain transactions involving 2 or more investment companies
(i) If immediately before a transaction described in paragraph (1) (other than subparagraph (E) thereof), 2 or more parties to the transaction were investment companies, then the transaction shall not be considered to be a reorganization with respect to any such investment company (and its shareholders and security holders) unless it was a regulated investment company, a real estate investment trust, or a corporation which meets the requirements of clause (ii).
(ii) A corporation meets the requirements of this clause if not more than 25 percent of the value of its total assets is invested in the stock and securities of any one issuer, and not more than 50 percent of the value of its total assets is invested in the stock and securities of 5 or fewer issuers. For purposes of this clause, all members of a controlled group of corporations (within the meaning of section 1563(a)) shall be treated as one issuer. For purposes of this clause, a person holding stock in a regulated investment company, a real estate investment trust, or an investment company which meets the requirements of this clause shall, except as provided in regulations, be treated as holding its proportionate share of the assets held by such company or trust.
(iii) For purposes of this subparagraph the term "investment company" means a regulated investment company, a real estate investment trust, or a corporation 50 percent or more of the value of whose total assets are stock and securities and 80 percent or more of the value of whose total assets are assets held for investment. In making the 50-percent and 80-percent determinations under the preceding sentence, stock and securities in any subsidiary corporation shall be disregarded and the parent corporation shall be deemed to own its ratable share of the subsidiary's assets, and a corporation shall be considered a subsidiary if the parent owns 50 percent or more of the combined voting power of all classes of stock entitled to vote, or 50 percent or more of the total value of shares of all classes of stock outstanding.
(iv) For purposes of this subparagraph, in determining total assets there shall be excluded cash and cash items (including receivables). Government securities, and, under regulations prescribed by the Secretary, assets acquired (through incurring indebtedness or otherwise) for purposes of meeting the requirements of clause (ii) or ceasing to be an investment company.
(v) This subparagraph shall not apply if the stock of each investment company is owned substantially by the same persons in the same proportions.
(vi) If an investment company which does not meet the requirements of clause (ii) acquires assets of another corporation, clause (i) shall be applied to such investment company and its shareholders and security holders as though its assets had been acquired by such other corporation. If such investment company acquires stock of another corporation in a reorganization described in section 368(a)(1)(B), clause (i) shall be applied to the shareholders of such investment company as though they had exchanged with such other corporation all of their stock in such company for stock having a fair market value equal to the fair market value of their stock of such investment company immediately after the exchange. For purposes of section 1001, the deemed acquisition or exchange referred to in the two preceding sentences shall be treated as a sale or exchange of property by the corporation and by the shareholders and security holders to which clause (i) is applied.
(vii) For purposes of clauses (ii) and (iii), the term "securities" includes obligations of State and local governments, commodity futures contracts, shares of regulated investment companies and real estate investment trusts, and other investments constituting a security within the meaning of the Investment Company Act of 1940 (
[(viii) Repealed.
(G) Distribution requirement for paragraph (1)(C)
(i) In general
A transaction shall fail to meet the requirements of paragraph (1)(C) unless the acquired corporation distributes the stock, securities, and other properties it receives, as well as its other properties, in pursuance of the plan of reorganization. For purposes of the preceding sentence, if the acquired corporation is liquidated pursuant to the plan of reorganization, any distribution to its creditors in connection with such liquidation shall be treated as pursuant to the plan of reorganization.
(ii) Exception
The Secretary may waive the application of clause (i) to any transaction subject to any conditions the Secretary may prescribe.
(H) Special rule for determining whether certain transactions are qualified under paragraph (1)(D)
In the case of any transaction with respect to which the requirements of subparagraphs (A) and (B) of section 354(b)(1) are met, for purposes of determining whether such transaction qualifies under subparagraph (D) of paragraph (1), the term "control" has the meaning given to such term by section 304(c).
(3) Additional rules relating to title 11 and similar cases
(A) Title 11 or similar case defined
For purposes of this part, the term "title 11 or similar case" means—
(i) a case under
(ii) a receivership, foreclosure, or similar proceeding in a Federal or State court.
(B) Transfer of assets in a title 11 or similar case
In applying paragraph (1)(G), a transfer of the assets of a corporation shall be treated as made in a title 11 or similar case if and only if—
(i) any party to the reorganization is under the jurisdiction of the court in such case, and
(ii) the transfer is pursuant to a plan of reorganization approved by the court.
(C) Reorganizations qualifying under paragraph (1)(G) and another provision
If a transaction would (but for this subparagraph) qualify both—
(i) under subparagraph (G) of paragraph (1), and
(ii) under any other subparagraph of paragraph (1) or under section 332 or 351,
then, for purposes of this subchapter (other than section 357(c)(1)), such transaction shall be treated as qualifying only under subparagraph (G) of paragraph (1).
(D) Agency receivership proceedings which involve financial institutions
For purposes of subparagraphs (A) and (B), in the case of a receivership, foreclosure, or similar proceeding before a Federal or State agency involving a financial institution referred to in section 581 or 591, the agency shall be treated as a court.
(E) Application of paragraph (2)(E)(ii)
In the case of a title 11 or similar case, the requirement of clause (ii) of paragraph (2)(E) shall be treated as met if—
(i) no former shareholder of the surviving corporation received any consideration for his stock, and
(ii) the former creditors of the surviving corporation exchanged, for an amount of voting stock of the controlling corporation, debt of the surviving corporation which had a fair market value equal to 80 percent or more of the total fair market value of the debt of the surviving corporation.
(b) Party to a reorganization
For purposes of this part, the term "a party to a reorganization" includes—
(1) a corporation resulting from a reorganization, and
(2) both corporations, in the case of a reorganization resulting from the acquisition by one corporation of stock or properties of another.
In the case of a reorganization qualifying under paragraph (1)(B) or (1)(C) of subsection (a), if the stock exchanged for the stock or properties is stock of a corporation which is in control of the acquiring corporation, the term "a party to a reorganization" includes the corporation so controlling the acquiring corporation. In the case of a reorganization qualifying under paragraph (1)(A), (1)(B), or (1)(C), or (1)(G) of subsection (a) by reason of paragraph (2)(C) of subsection (a), the term "a party to a reorganization" includes the corporation controlling the corporation to which the acquired assets or stock are transferred. In the case of a reorganization qualifying under paragraph (1)(A) or (1)(G) of subsection (a) by reason of paragraph (2)(D) of that subsection, the term "a party to a reorganization" includes the controlling corporation referred to in such paragraph (2)(D). In the case of a reorganization qualifying under subsection (a)(1)(A) by reason of subsection (a)(2)(E), the term "party to a reorganization" includes the controlling corporation referred to in subsection (a)(2)(E).
(c) Control defined
For purposes of part I (other than section 304), part II, this part, and part V, the term "control" means the ownership of stock possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote and at least 80 percent of the total number of shares of all other classes of stock of the corporation.
(Aug. 16, 1954, ch. 736,
References in Text
The Investment Company Act of 1940, referred to in subsec. (a)(2)(F)(vii), is title I of act Aug. 22, 1940, ch. 686,
Amendments
1989—Subsec. (a)(3)(D).
1988—Subsec. (a)(2)(F)(ii).
Subsec. (a)(3)(D)(iv), (v).
1986—Subsec. (a)(2)(A).
Subsec. (a)(2)(F)(ii).
Subsec. (a)(2)(G)(i).
Subsec. (a)(2)(H).
Subsec. (a)(3)(D).
Subsec. (c).
1984—Subsec. (a)(2)(F)(viii).
Subsec. (a)(2)(G).
Subsec. (c).
1983—Subsec. (a)(2)(C).
Subsec. (a)(3)(B)(i).
1982—Subsec. (a)(1)(F).
1981—Subsec. (a)(3)(D).
1980—Subsec. (a)(1)(G).
Subsec. (a)(2)(C).
Subsec. (a)(2)(D).
Subsec. (a)(3).
Subsec. (b).
1978—Subsec. (a)(2)(F).
1976—Subsec. (a)(2)(F).
Subsec. (c).
1971—Subsec. (a)(2)(E).
Subsec. (b).
1968—Subsec. (a)(2)(D).
Subsec. (b).
1964—Subsec. (a).
Subsec. (b).
Effective Date of 1989 Amendments
Repeal of amendment by section 904(a) of
Section 1401(c)(1) of
Effective Date of 1988 Amendment
Amendment by section 1018(q)(5) of
Section 4012(b)(1)(C)(i) of
Effective Date of 1986 Amendment
Repeal of amendment by section 806(f)(1) of
Section 904(c)(1) of
Amendment by section 1804(g)(2) of
Amendment by section 1804(h) of
Section 1879(l)(2) of
Effective Date of 1984 Amendment
Amendment by section 63(a) of
Section 64(b) of
Amendment by section 174(b)(5)(D) of
Effective Date of 1983 Amendment
Section 311(b)(2) of
Effective Date of 1982 Amendment
Section 225(b) of
"(1)
"(2)
Effective Date of 1981 Amendment
Section 246(a) of
Effective Date of 1980 Amendment
Amendment by
Effective Date of 1978 Amendment
Section 701(j)(2) of
"(A) Except as provided in subparagraphs (B) and (C), the amendments made by paragraph (1) [amending this section] shall apply as if included in section 368(a)(2)(F) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] as added by section 2131(a) of the Tax Reform Act of 1976 [
"(B) Clause (viii) of section 368(a)(2)(F) of the Internal Revenue Code of 1986 (as added by paragraph (1)) shall apply only with respect to losses sustained after September 26, 1977.
"(C) Clause (vii) of section 368(a)(2)(F) of the Internal Revenue Code of 1986 (as added by paragraph (1)) shall apply only with respect to transfers made after September 26, 1977."
Effective Date of 1976 Amendment
Section 2131(f)(1), (2) of
"(1) Except as provided in paragraph (2), the amendment made by subsection (a) [amending this section] shall apply to transfers made after February 17, 1976, in taxable years ending after such date.
"(2) The amendment made by subsection (a) shall not apply to transfers made in accordance with a ruling issued by the Internal Revenue Service before February 18, 1976, holding that a proposed transaction would be a reorganization described in paragraph (1) of section 368(a) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]."
For effective date of amendment by section 806(f)(1) of
Effective Date of 1971 Amendment
Section 1(c) of
Effective Date of 1968 Amendment
Section 1(c) of
Effective Date of 1964 Amendment
Section 218(c) of
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 [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Cross References
Assumption of liability, liabilities in excess of basis, see
Carryovers in certain corporate acquisitions, operating rules, see
Dividends paid on certain preferred stock of public utilities, stock issued in reorganization as defined in this section, see
Section 306 stock defined, stock received in reorganization within meaning of this section, see
Taxability of beneficiary of employees' trust, certain plan terminations, see
Transfer to corporation controlled by transferor, definition of control, see
Transferred assets, other taxes, see
Section Referred to in Other Sections
This section is referred to in
1 So in original. A reference to