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26 U.S.C. § 306 — Dispositions of certain stock
Federal law — U.S. Code and appendices · legal_authorities
**(a) General rule** If a shareholder sells or otherwise disposes of section 306 stock (as defined in subsection (c))—
(1) **Dispositions other than redemptions** — If such disposition is not a redemption (within the meaning of section 317(b))—
(A) The amount realized shall be treated as ordinary income. This subparagraph shall not apply to the extent that—
(i) the amount realized, exceeds
(ii) such stock’s ratable share of the amount which would have been a dividend at the time of distribution if (in lieu of section 306 stock) the corporation had distributed money in an amount equal to the fair market value of the stock at the time of distribution.
(B) Any excess of the amount realized over the sum of—
(i) the amount treated under subparagraph (A) as ordinary income, plus
(ii) the adjusted basis of the stock,
shall be treated as gain from the sale of such stock.
(C) No loss shall be recognized.
(D) *Treatment as dividend.—* — For purposes of section 1(h)(11) and such other provisions as the Secretary may specify, any amount treated as ordinary income under this paragraph shall be treated as a dividend received from the corporation.
(2) **Redemption** — If the disposition is a redemption, the amount realized shall be treated as a distribution of property to which section 301 applies.
**(b) Exceptions** Subsection (a) shall not apply—
(1) **Termination of shareholder’s interest, etc.**
(A) *Not in redemption* — If the disposition—
(i) is not a redemption;
(ii) is not, directly or indirectly, to a person the ownership of whose stock would (under section 318(a)) be attributable to the shareholder; and
(iii) terminates the entire stock interest of the shareholder in the corporation (and for purposes of this clause, s
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Source location: Title 26, Chapter 1, § 306; chapter-001-normal-taxes-and-surtaxes.md
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**(a) General rule** If a shareholder sells or otherwise disposes of section 306 stock (as defined in subsection (c))—
(1) **Dispositions other than redemptions** — If such disposition is not a redemption (within the meaning of section 317(b))—
(A) The amount realized shall be treated as ordinary income. This subparagraph shall not apply to the extent that—
(i) the amount realized, exceeds
(ii) such stock’s ratable share of the amount which would have been a dividend at the time of distribution if (in lieu of section 306 stock) the corporation had distributed money in an amount equal to the fair market value of the stock at the time of distribution.
(B) Any excess of the amount realized over the sum of—
(i) the amount treated under subparagraph (A) as ordinary income, plus
(ii) the adjusted basis of the stock,
shall be treated as gain from the sale of such stock.
(C) No loss shall be recognized.
(D) *Treatment as dividend.—* — For purposes of section 1(h)(11) and such other provisions as the Secretary may specify, any amount treated as ordinary income under this paragraph shall be treated as a dividend received from the corporation.
(2) **Redemption** — If the disposition is a redemption, the amount realized shall be treated as a distribution of property to which section 301 applies.
**(b) Exceptions** Subsection (a) shall not apply—
(1) **Termination of shareholder’s interest, etc.**
(A) *Not in redemption* — If the disposition—
(i) is not a redemption;
(ii) is not, directly or indirectly, to a person the ownership of whose stock would (under section 318(a)) be attributable to the shareholder; and
(iii) terminates the entire stock interest of the shareholder in the corporation (and for purposes of this clause, section 318(a) shall apply).
(B) *In redemption* — If the disposition is a redemption and paragraph (3) or (4) of section 302(b) applies.
(2) **Liquidations** — If the section 306 stock is redeemed in a distribution in complete liquidation to which part II (sec. 331 and following) applies.
(3) **Where gain or loss is not recognized** — To the extent that, under any provision of this subtitle, gain or loss to the shareholder is not recognized with respect to the disposition of the section 306 stock.
(4) **Transactions not in avoidance** — If it is established to the satisfaction of the Secretary—
(A) that the distribution, and the disposition or redemption, or
(B) in the case of a prior or simultaneous disposition (or redemption) of the stock with respect to which the section 306 stock disposed of (or redeemed) was issued, that the disposition (or redemption) of the section 306 stock,
was not in pursuance of a plan having as one of its principal purposes the avoidance of Federal income tax.
**(c) Section 306 stock defined**
(1) **In general** — For purposes of this subchapter, the term “section 306 stock” means stock which meets the requirements of subparagraph (A), (B), or (C) of this paragraph.
(A) *Distributed to seller* — Stock (other than common stock issued with respect to common stock) which was distributed to the shareholder selling or otherwise disposing of such stock if, by reason of section 305(a), any part of such distribution was not includible in the gross income of the shareholder.
(B) *Received in a corporate reorganization or separation* — Stock which is not common stock and—
(i) which was received, by the shareholder selling or otherwise disposing of such stock, in pursuance of a plan of reorganization (within the meaning of section 368(a)), or in a distribution or exchange to which section 355 (or so much of section 356 as relates to section 355) applied, and
(ii) with respect to the receipt of which gain or loss to the shareholder was to any extent not recognized by reason of part III, but only to the extent that either the effect of the transaction was substantially the same as the receipt of a stock dividend, or the stock was received in exchange for section 306 stock.
For purposes of this section, a receipt of stock to which the foregoing provisions of this subparagraph apply shall be treated as a distribution of stock.
(C) *Stock having transferred or substituted basis* — Except as otherwise provided in subparagraph (B), stock the basis of which (in the hands of the shareholder selling or otherwise disposing of such stock) is determined by reference to the basis (in the hands of such shareholder or any other person) of section 306 stock.
(2) **Exception where no earnings and profits** — For purposes of this section, the term “section 306 stock” does not include any stock no part of the distribution of which would have been a dividend at the time of the distribution if money had been distributed in lieu of the stock.
(3) **Certain stock acquired in section 351 exchange** — The term “section 306 stock” also includes any stock which is not common stock acquired in an exchange to which section 351 applied if receipt of money (in lieu of the stock) would have been treated as a dividend to any extent. Rules similar to the rules of section 304(b)(2) shall apply—
(A) for purposes of the preceding sentence, and
(B) for purposes of determining the application of this section to any subsequent disposition of stock which is section 306 stock by reason of an exchange described in the preceding sentence.
(4) **Application of attribution rules for certain purposes** — For purposes of paragraphs (1)(B)(ii) and (3), section 318(a) shall apply. For purposes of applying the preceding sentence to paragraph (3), the rules of section 304(c)(3)(B) shall apply.
**(d) Stock rights** For purposes of this section—
(1) stock rights shall be treated as stock, and
(2) stock acquired through the exercise of stock rights shall be treated as stock distributed at the time of the distribution of the stock rights, to the extent of the fair market value of such rights at the time of the distribution.
**(e) Convertible stock** For purposes of subsection (c)—
(1) if section 306 stock was issued with respect to common stock and later such section 306 stock is exchanged for common stock in the same corporation (whether or not such exchange is pursuant to a conversion privilege contained in the section 306 stock), then (except as provided in paragraph (2)) the common stock so received shall not be treated as section 306 stock; and
(2) common stock with respect to which there is a privilege of converting into stock other than common stock (or into property), whether or not the conversion privilege is contained in such stock, shall not be treated as common stock.
**(f) Source of gain** The amount treated under subsection (a)(1)(A) as ordinary income shall, for purposes of part I of subchapter N (sec. 861 and following, relating to determination of sources of income), be treated as derived from the same source as would have been the source if money had been received from the corporation as a dividend at the time of the distribution of such stock. If under the preceding sentence such amount is determined to be derived from sources within the United States, such amount shall be considered to be fixed or determinable annual or periodical gains, profits, and income within the meaning of section 871(a) or section 881(a), as the case may be.
**(g) Change in terms and conditions of stock** If a substantial change is made in the terms and conditions of any stock, then, for purposes of this section—
(1) the fair market value of such stock shall be the fair market value at the time of the distribution or at the time of such change, whichever such value is higher;
(2) such stock’s ratable share of the amount which would have been a dividend if money had been distributed in lieu of stock shall be determined as of the time of distribution or as of the time of such change, whichever such ratable share is higher; and
(3) subsection (c)(2) shall not apply unless the stock meets the requirements of such subsection both at the time of such distribution and at the time of such change.
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Wage withholding for income tax purposes**
(1) **In general** — The amount withheld as tax under chapter 24 shall be allowed to the recipient of the income as a credit against the tax imposed by this subtitle.
(2) **Year of credit** — The amount so withheld during any calendar year shall be allowed as a credit for the taxable year beginning in such calendar year. If more than one taxable year begins in a calendar year, such amount shall be allowed as a credit for the last taxable year so beginning.
**(b) Credit for special refunds of social security tax**
(1) **In general** — The Secretary may prescribe regulations providing for the crediting against the tax imposed by this subtitle of the amount determined by the taxpayer or the Secretary to be allowable under section 6413(c) as a special refund of tax imposed on wages. The amount allowed as a credit under such regulations shall, for purposes of this subtitle, be considered an amount withheld at source as tax under section 3402.
(2) **Year of credit** — Any amount to which paragraph (1) applies shall be allowed as a credit for the taxable year beginning in the calendar year during which the wages were received. If more than one taxable year begins in the calendar year, such amount shall be allowed as a credit for the last taxable year so beginning.
**(c) Special rule for backup withholding** Any credit allowed by subsection (a) for any amount withheld under section 3406 shall be allowed for the taxable year of the recipient of the income in which the income is received.
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Federal law — U.S. Code and appendices · legal_authorities
**(a) General rule** 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.
**(b) Redemptions treated as exchanges**
(1) **Redemptions not equivalent to dividends** — Subsection (a) shall apply if the redemption is not essentially equivalent to a dividend.
(2) **Substantially disproportionate redemption of stock**
(A) *In general* — Subsection (a) shall apply if the distribution is substantially disproportionate with respect to the shareholder.
(B) *Limitation* — This paragraph shall not apply unless immediately after the redemption the shareholder owns less than 50 percent of the total combined voting power of all classes of stock entitled to vote.
(C) *Definitions* — For purposes of this paragraph, the distribution is substantially disproportionate if—
(i) the ratio which the voting stock of the corporation owned by the shareholder immediately after the redemption bears to all of the voting stock of the corporation at such time,
is less than 80 percent of—
(ii) the ratio which the voting stock of the corporation owned by the shareholder immediately before the redemption bears to all of the voting stock of the corporation at such time.
For purposes of this paragraph, no distribution shall be treated as substantially disproportionate unless the shareholder’s ownership of the common stock of the corporation (whether voting or nonvoting) after and before redemption also meets the 80 percent requirement of the preceding sentence. For purposes of the preceding sentence, if there is more than one class of common stock, the determinations shall be made by r
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Married individuals filing joint returns and surviving spouses** There is hereby imposed on the taxable income of—
(1) every married individual (as defined in section 7703) who makes a single return jointly with his spouse under section 6013, and
(2) every surviving spouse (as defined in section 2(a)),
a tax determined in accordance with the following table: If taxable income is:The tax is: Not over $36,90015% of taxable income. Over $36,900 but not over $89,150$5,535, plus 28% of the excess over $36,900. Over $89,150 but not over $140,000$20,165, plus 31% of the excess over $89,150. Over $140,000 but not over $250,000$35,928.50, plus 36% of the excess over $140,000. Over $250,000$75,528.50, plus 39.6% of the excess over $250,000.
**(b) Heads of households** There is hereby imposed on the taxable income of every head of a household (as defined in section 2(b)) a tax determined in accordance with the following table: If taxable income is:The tax is: Not over $29,60015% of taxable income. Over $29,600 but not over $76,400$4,440, plus 28% of the excess over $29,600. Over $76,400 but not over $127,500$17,544, plus 31% of the excess over $76,400. Over $127,500 but not over $250,000$33,385, plus 36% of the excess over $127,500. Over $250,000$77,485, plus 39.6% of the excess over $250,000.
**(c) Unmarried individuals (other than surviving spouses and heads of households)** There is hereby imposed on the taxable income of every individual (other than a surviving spouse as defined in section 2(a) or the head of a household as defined in section 2(b)) who is not a married individual (as defined in section 7703) a tax determined in accordance with the following table: If taxable income is:The tax is: Not over $22,10015% of taxable income. Over $22,100 but not over $53,50
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Definition of surviving spouse**
(1) **In general** — For purposes of section 1, the term “surviving spouse” means a taxpayer—
(A) whose spouse died during either of his two taxable years immediately preceding the taxable year, and
(B) who maintains as his home a household which constitutes for the taxable year the principal place of abode (as a member of such household) of a dependent (i) who (within the meaning of section 152, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof) is a son, stepson, daughter, or stepdaughter of the taxpayer, and (ii) with respect to whom the taxpayer is entitled to a deduction for the taxable year under section 151.
(2) **Limitations** — Notwithstanding paragraph (1), for purposes of section 1 a taxpayer shall not be considered to be a surviving spouse—
(A) if the taxpayer has remarried at any time before the close of the taxable year, or
(B) unless, for the taxpayer’s taxable year during which his spouse died, a joint return could have been made under the provisions of section 6013 (without regard to subsection (a)(3) thereof).
(3) **Special rule where deceased spouse was in missing status** — If an individual was in a missing status (within the meaning of section 6013(f)(3)) as a result of service in a combat zone (as determined for purposes of section 112) and if such individual remains in such status until the date referred to in subparagraph (A) or (B), then, for purposes of paragraph (1)(A), the date on which such individual died shall be treated as the earlier of the date determined under subparagraph (A) or the date determined under subparagraph (B):
(A) the date on which the determination is made under [section 556 of title 37](https://uscode.house.gov/view.xhtml?req=granuleid:
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Federal law — U.S. Code and appendices · legal_authorities
(1) For certain distributions by a corporation which are applied in reduction of basis of stock, see section 301(c)(2).
(2) For basis in case of construction of new vessels, see chapter 533 of title 46, United States Code.
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Treatment of certain stock purchases**
(1) **Acquisition by related corporation (other than subsidiary)** — For purposes of sections 302 and 303, if—
(A) one or more persons are in control of each of two corporations, and
(B) in return for property, one of the corporations acquires stock in the other corporation from the person (or persons) so in control,
then (unless paragraph (2) applies) such property shall be treated as a distribution in redemption of the stock of the corporation acquiring such stock. To the extent that such distribution is treated as a distribution to which section 301 applies, the transferor and the acquiring corporation shall be treated in the same manner as if the transferor had transferred the stock so acquired to the acquiring corporation in exchange for stock of the acquiring corporation in a transaction to which section 351(a) applies, and then the acquiring corporation had redeemed the stock it was treated as issuing in such transaction.
(2) **Acquisition by subsidiary** — For purposes of sections 302 and 303, if—
(A) in return for property, one corporation acquires from a shareholder of another corporation stock in such other corporation, and
(B) the issuing corporation controls the acquiring corporation,
then such property shall be treated as a distribution in redemption of the stock of the issuing corporation.
**(b) Special rules for application of subsection (a)**
(1) **Rules for determinations under section 302(b)** — In the case of any acquisition of stock to which subsection (a) of this section applies, determinations as to whether the acquisition is, by reason of section 302(b), to be treated as a distribution in part or full payment in exchange for the stock shall be made by reference to the stock of the i
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Federal law — U.S. Code and appendices · legal_authorities
Page 1085
TITLE 26—INTERNAL REVENUE CODE
§ 306
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103–66 effective Apr. 30, 1993,
see section 13206(c)(3) of Pub. L. 103–66 set out as a note
under section 167 of this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Pub. L. 101–508, title XI, § 11322(b), Nov. 5, 1990, 104
Stat. 1388–464, provided that:
‘‘(1) IN GENERAL.—Except as provided in paragraph (2),
the amendment made by subsection (a) [amending this
section] shall apply to stock issued after October 9,
1990.
‘‘(2) EXCEPTION.—The amendment made by subsection
(a) shall not apply to any stock issued after October 9,
1990, if—
‘‘(A) such stock is issued pursuant to a written
binding contract in effect on October 9, 1990, and at
all times thereafter before such issuance,
‘‘(B) such stock is issued pursuant to a registration
or offering statement filed on or before October 9,
1990, with a Federal or State agency regulating the
offering or sale of securities and such stock is issued
before the date 90 days after the date of such filing,
or
‘‘(C) such stock is issued pursuant to a plan filed on
or before October 9, 1990, in a title 11 or similar case
(as defined in section 368(a)(3)(A) of the Internal Rev-
enue Code of 1986).’’
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97–448 effective, except as oth-
erwise provided, as if it had been included in the provi-
sion of the Economic Recovery Tax Act of 1981, Pub. L.
97–34, to which such amendment relates, see section 109
of Pub. L. 97–448, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Pub. L. 97–34, title III, § 321(c), Aug. 13, 1981, 95 Stat.
289, provided that: ‘‘The amendments made by this sec-
tion [amending this section] shall apply to distribu-
tio
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