26 U.S.C. § 361 — Nonrecognition of gain or loss to corpora-

Page 1139 TITLE 26—INTERNAL REVENUE CODE § 361 ‘‘(1) shall prescribe rules which provide appropriate adjustments under subchapter K of chapter 1 of the Internal Revenue Code of 1986 to prevent the accel- eration or duplication of losses through the assump- tion of (or transfer of assets subject to) liabilities de- scribed in section 358(h)(3) of such Code (as added by subsection (a)) in transactions involving partner- ships, and ‘‘(2) may prescribe rules which provide appropriate adjustments under subchapter S of chapter 1 of such Code in transactions described in paragraph (1) in- volving S corporations rather than partnerships.’’ SUBPART C—EFFECTS ON CORPORATIONS Sec. 361. Nonrecognition of gain or loss to corpora- tions; treatment of distributions. 362. Basis to corporations. [363. Repealed.] Editorial Notes AMENDMENTS 2018—Pub. L. 115–141, div. U, title IV, § 401(a)(66), Mar. 23, 2018, 132 Stat. 1187, substituted ‘‘Corporations’’ for ‘‘Corporation’’ in subpart heading. 1988—Pub. L. 100–647, title I, § 1018(d)(5)(F), Nov. 10, 1988, 102 Stat. 3580, substituted ‘‘corporations; treat- ment of distributions.’’ for ‘‘transferor corporation; other treatment of transferor corporation; etc.’’ in item 361. 1986—Pub. L. 99–514, title XVIII, § 1804(g)(3), Oct. 22, 1986, 100 Stat. 2806, substituted ‘‘to transferor corpora- tion; other treatment of transferor corporation; etc.’’ for ‘‘corporations’’ in item 361. 1976—Pub. L. 94–455, title XIX, § 1901(b)(13), Oct. 4, 1976, 90 Stat. 1795, struck out item 363 ‘‘Effect on earn- ings and profits’’. § 361. Nonrecognition of gain or loss to corpora- tions; treatment of distributions (a) General rule No gain or loss shall be recognized to a cor- poration if such corporation is a party to a reor- ganization 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 securi- ties 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 pursu- ance 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 rec- ognized. The amount of gain recognized under subpara- graph (B) shall not exceed the sum of the money and the fair market value of the other property so received which is not so distrib- uted. (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 per- mitted by subsection (a) to be received with- out 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 nec- essary to prevent avoidance of tax through abuse of the preceding sentence or subsection (c)(3). In the case of a reorganization described in section 368(a)(1)(D) with respect to which stock or securities of the corporation to which the assets are transferred are distributed in a transaction which qualifies under section 355, this paragraph shall apply only to the extent that the sum of the money and the fair market value of other property transferred to such creditors does not exceed the adjusted bases of such assets transferred (reduced by the amount of the liabilities assumed (within the meaning of section 357(c))). (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 para- graph (1), the corporation distributes prop- erty other than qualified property, and (ii) the fair market value of such prop- erty exceeds its adjusted basis (in the hands of the distributing corporation), then gain shall be recognized to the distrib- uting 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 obliga- tion 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 distribu- tion referred to in paragraph (1) is subject to Page 1140 TITLE 26—INTERNAL REVENUE CODE § 362 a liability or the shareholder assumes a li- ability of the distributing corporation in connection with the distribution, then, for purposes of subparagraph (A), the fair mar- ket 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 reorganiza- tion shall be treated as a distribution to its shareholders pursuant to the plan of reorga- nization. (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, 68A Stat. 118; Pub. L. 99–514, title XVIII, § 1804(g)(1), Oct. 22, 1986, 100 Stat. 2805; Pub. L. 100–647, title I, § 1018(d)(5)(A), Nov. 10, 1988, 102 Stat. 3578; Pub. L. 101–508, title XI, § 11321(b), Nov. 5, 1990, 104 Stat. 1388–463; Pub. L. 108–357, title VIII, § 898(a), Oct. 22, 2004, 118 Stat. 1649; Pub. L. 109–135, title IV, § 403(jj)(1), Dec. 21, 2005, 119 Stat. 2632.) Editorial Notes AMENDMENTS 2005—Subsec. (b)(3). Pub. L. 109–135 inserted before pe- riod at end ‘‘(reduced by the amount of the liabilities assumed (within the meaning of section 357(c)))’’. 2004—Subsec. (b)(3). Pub. L. 108–357 inserted at end ‘‘In the case of a reorganization described in section 368(a)(1)(D) with respect to which stock or securities of the corporation to which the assets are transferred are distributed in a transaction which qualifies under sec- tion 355, this paragraph shall apply only to the extent that the sum of the money and the fair market value of other property transferred to such creditors does not exceed the adjusted bases of such assets transferred.’’ 1990—Subsec. (c)(5). Pub. L. 101–508 added par. (5). 1988—Pub. L. 100–647 substituted ‘‘corporations; treat- ment of distributions’’ for ‘‘transferor corporations; other treatment of transferor corporation; etc.’’ in sec- tion catchline and amended text generally, revising content and structure of section. 1986—Pub. L. 99–514 amended section generally. Prior to amendment, section related to whether gain or loss was recognized if corporation which was party to reor- ganization exchanged property, pursuant to plan of re- organization, for stock or securities in another cor- poration which was party to the reorganization or for other property or money. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2005 AMENDMENT Amendment by Pub. L. 109–135 effective as if included in the provision of the American Jobs Creation Act of 2004, Pub. L. 108–357, to which such amendment relates, see section 403(nn) of Pub. L. 109–135, set out as a note under section 26 of this title. EFFECTIVE DATE OF 2004 AMENDMENT Amendment by Pub. L. 108–357 applicable to transfers of money or other property, or liabilities assumed, in connection with a reorganization occurring on or after Oct. 22, 2004, see section 898(c) of Pub. L. 108–357, set out as a note under section 357 of this title. EFFECTIVE DATE OF 1990 AMENDMENT Amendment by Pub. L. 101–508 applicable to distribu- tions after Oct. 9, 1990, but not applicable to any dis- tribution pursuant to a written binding contract in ef- fect on Oct. 9, 1990, and at all times thereafter before such distribution, see section 11321(c) of Pub. L. 101–508, set out as a note under section 355 of this title. EFFECTIVE DATE OF 1988 AMENDMENT Amendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title. EFFECTIVE DATE OF 1986 AMENDMENT Pub. L. 99–514, title XVIII, § 1804(g)(4), Oct. 22, 1986, 100 Stat. 2806, provided that: ‘‘The amendments made by this subsection [amending this section and section 368 of this title] shall apply to plans of reorganizations adopted after the date of the enactment of this Act [Oct. 22, 1986].’’ PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989 For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of Pub. L. 99–514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. L. 99–514, as amended, set out as a note under section 401 of this title. § 362. Basis to corporations (a) Property acquired by issuance of stock or as paid-in surplus If property was acquired 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, in- creased 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 ex- change 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 cap- ital (1) Property other than money Notwithstanding subsection (a)(2), if prop- erty other than money— (A) is acquired by a corporation as a con- tribution to capital, and (B) is not contributed by a shareholder as such,