26 U.S.C. § 337 — Nonrecognition for property distributed to

Page 1111 TITLE 26—INTERNAL REVENUE CODE § 337 ‘‘(B) For purposes of subparagraph (A), a distribu- tion, or sale, or exchange, of a distributee corpora- tion (within the meaning of section 337(c)(3) of the In- ternal Revenue Code of 1986) shall be treated as satis- fying the requirements of subparagraph (A) if its sub- sidiary satisfies the requirements of subparagraph (A). ‘‘(C) For purposes of section 56 of the Internal Rev- enue Code of 1986 (as amended by this Act), any gain or loss not recognized by reason of this paragraph shall not be taken into account in determining the adjusted net book income of the corporation. ‘‘(5) In the case of a corporation incorporated under the laws of Wisconsin on April 3, 1948— ‘‘(A) a voting trust established not later than De- cember 31, 1987, shall qualify as a trust permitted as a shareholder of an S corporation and shall be treated as only 1 shareholder if the holders of bene- ficial interests in such voting trust are— ‘‘(i) employees or retirees of such corporation, or ‘‘(ii) in the case of stock or voting trust certifi- cates acquired from an employee or retiree of such corporation, the spouse, child, or estate of such employee or retiree or a trust created by such employee or retiree which is described in section 1361(c)(2) of the Internal Revenue Code of 1986 (or treated as described in such section by reason of section 1361(d) of such Code), and ‘‘(B) the amendment made by section 632 (other than subsection (b) thereof) shall not apply to such corporation if it elects to be an S corporation be- fore January 1, 1989. ‘‘(6) The amendments made by this subtitle shall not apply to the liquidation of a corporation incor- porated on January 26, 1982, under the laws of the State of Alabama with a principal place of business in Colbert County, Alabama, but only if such corpora- tion is completely liquidated on or before December 31, 1987. ‘‘(7) The amendments made by this subtitle shall not apply to the acquisition by a Delaware bank hold- ing company of all of the assets of an Iowa bank hold- ing company pursuant to a written contract dated December 9, 1981. ‘‘(8) The amendments made by this subtitle shall not apply to the liquidation of a corporation incor- porated under the laws of Delaware on January 20, 1984, if more than 40 percent of the stock of such cor- poration was acquired by purchase on June 11, 1986, and there was a tender offer with respect to all addi- tional outstanding shares of such corporation on July 29, 1986, but only if the corporation is completely liq- uidated on or before December 31, 1987. ‘‘(g) TREATMENT OF CERTAIN DISTRIBUTIONS IN RE- SPONSE TO HOSTILE TENDER OFFER.— ‘‘(1) IN GENERAL.—No gain or loss shall be recog- nized under the Internal Revenue Code of 1986 to a corporation (hereinafter in this subsection referred to as ‘parent’) on a qualified distribution. ‘‘(2) QUALIFIED DISTRIBUTION DEFINED.—For pur- poses of paragraph (1)— ‘‘(A) IN GENERAL.—The term ‘qualified distribu- tion’ means a distribution— ‘‘(i) by parent of all of the stock of a qualified subsidiary in exchange for stock of parent which was acquired for purposes of such exchange pursu- ant to a tender offer dated February 16, 1982, and ‘‘(ii) pursuant to a contract dated February 13, 1982, and ‘‘(iii) which was made not more than 60 days after the board of directors of parent rec- ommended rejection of an unsolicited tender offer to obtain control of parent. ‘‘(B) QUALIFIED SUBSIDIARY.—The term ‘qualified subsidiary’ means a corporation created or orga- nized under the laws of Delaware on September 7, 1976, all of the stock of which was owned by parent immediately before the qualified distribution.’’ § 337. Nonrecognition for property distributed to parent in complete liquidation of subsidiary (a) In general No gain or loss shall be recognized to the liq- uidating corporation on the distribution to the 80-percent distributee of any property in a com- plete liquidation to which section 332 applies. (b) Treatment of indebtedness of subsidiary, etc. (1) Indebtedness of subsidiary to parent If— (A) a corporation is liquidated in a liquida- tion to which section 332 applies, and (B) on the date of the adoption of the plan of liquidation, such corporation was in- debted to the 80-percent distributee, for purposes of this section and section 336, any transfer of property to the 80-percent dis- tributee in satisfaction of such indebtedness shall be treated as a distribution to such dis- tributee in such liquidation. (2) Treatment of tax-exempt distributee (A) In general Except as provided in subparagraph (B), paragraph (1) and subsection (a) shall not apply where the 80-percent distributee is an organization (other than a cooperative de- scribed in section 521) which is exempt from the tax imposed by this chapter. (B) Exception where property will be used in unrelated business (i) In general Subparagraph (A) shall not apply to any distribution of property to an organization described in section 511(a)(2) if, imme- diately after such distribution, such orga- nization uses such property in an activity the income from which is subject to tax under section 511(a). (ii) Later disposition or change in use If any property to which clause (i) ap- plied is disposed of by the organization ac- quiring such property, notwithstanding any other provision of law, any gain (not in excess of the amount not recognized by reason of clause (i)) shall be included in such organization’s unrelated business tax- able income. For purposes of the preceding sentence, if such property ceases to be used in an activity referred to in clause (i), such organization shall be treated as hav- ing disposed of such property on the date of such cessation. (c) 80-percent distributee For purposes of this section, the term ‘‘80-per- cent distributee’’ means only the corporation which meets the 80-percent stock ownership re- quirements specified in section 332(b). For pur- poses of this section, the determination of whether any corporation is an 80-percent dis- tributee shall be made without regard to any consolidated return regulation. (d) Regulations The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of the amendments made by sub- Page 1112 TITLE 26—INTERNAL REVENUE CODE § 338 title D of title VI of the Tax Reform Act of 1986, including— (1) regulations to ensure that such purposes may not be circumvented through the use of any provision of law or regulations (including the consolidated return regulations and part III of this subchapter) or through the use of a regulated investment company, real estate in- vestment trust, or tax-exempt entity, and (2) regulations providing for appropriate co- ordination of the provisions of this section with the provisions of this title relating to taxation of foreign corporations and their shareholders. (Added Pub. L. 99–514, title VI, § 631(a), Oct. 22, 1986, 100 Stat. 2271; amended Pub. L. 100–203, title X, § 10223(a), Dec. 22, 1987, 101 Stat. 1330–411; Pub. L. 100–647, title I, § 1006(e)(4), (5)(A), Nov. 10, 1988, 102 Stat. 3400.) Editorial Notes REFERENCES IN TEXT The Tax Reform Act of 1986, referred to in subsec. (d), is Pub. L. 99–514, Oct. 22, 1986, 100 Stat. 2085. Subtitle D (§§ 631–634) of title VI of the Tax Reform Act of 1986 en- acted sections 336 and 337 of this title, amended sec- tions 26, 311, 312, 332, 334, 338, 341, 346, 367, 453, 453B, 467, 852, 897, 1056, 1248, 1255, 1276, 1363, 1366, 1374, and 1375 of this title, and repealed former sections 333, 336, and 337 of this title. For complete classification of this Act to the Code, see Tables. PRIOR PROVISIONS A prior section 337, acts Aug. 16, 1954, ch. 736, 68A Stat. 106; Sept. 2, 1958, Pub. L. 85–866, title I, § 19, 72 Stat. 1615; Oct. 4, 1976, Pub. L. 94–455, title XIX, §§ 1901(a)(46), 1906(b)(13)(A), title XXI, § 2118(a), 90 Stat. 1772, 1834, 1912; Nov. 6, 1978, Pub. L. 95–600, title VII, § 701(i)(1), 92 Stat. 2904; Nov. 10, 1978, Pub. L. 95–628, § 4(a), 92 Stat. 3628; Apr. 2, 1980, Pub. L. 96–223, title IV, § 403(b)(2)(A), 94 Stat. 304; Oct. 19, 1980, Pub. L. 96–471, § 2(c)(2), 94 Stat. 2254; Dec. 24, 1980, Pub. L. 96–589, § 5(c), 94 Stat. 3405; Sept. 3, 1982, Pub. L. 97–248, title II, § 224(c)(5), (6), 96 Stat. 489; Oct. 22, 1986, Pub. L. 99–514, title XVIII, § 1804(e)(7)(A), 100 Stat. 2803, related to gain or loss on sales or exchanges in connection with certain liquidations, prior to repeal by Pub. L. 99–514, § 631(a). AMENDMENTS 1988—Subsec. (b)(2)(B)(i). Pub. L. 100–647, § 1006(e)(4)(A), (B), substituted ‘‘described in section 511(a)(2)’’ for ‘‘described in section 511(a)(2) or 511(b)(2)’’ and ‘‘in an activity the income from which is subject to tax under section 511(a)’’ for ‘‘in an unrelated trade or business (as defined in section 513)’’. Subsec. (b)(2)(B)(ii). Pub. L. 100–647, § 1006(e)(4)(C), substituted ‘‘an activity referred to in clause (i)’’ for ‘‘an unrelated trade or business of such organization’’. Subsec. (d). Pub. L. 100–647, § 1006(e)(5)(A), in introduc- tory provisions, substituted ‘‘amendments made by subtitle D of title VI of the Tax Reform Act of 1986’’ for ‘‘amendments made to this subpart by the Tax Reform Act of 1986’’, and in par. (1), substituted ‘‘this sub- chapter) or through the use of a regulated investment company, real estate investment trust, or tax-exempt entity’’ for ‘‘this subchapter)’’. 1987—Subsec. (c). Pub. L. 100–203 inserted at end ‘‘For purposes of this section, the determination of whether any corporation is an 80-percent distributee shall be made without regard to any consolidated return regula- tion.’’ Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1988 AMENDMENT Pub. L. 100–647, title I, § 1006(e)(5)(B), Nov. 10, 1988, 102 Stat. 3401, provided that: ‘‘The amendment made by subparagraph (A)(ii) [amending this section] shall not apply to any reorganization if before June 10, 1987— ‘‘(i) the board of directors of a party to the reorga- nization adopted a resolution to solicit shareholder approval for the transaction, or ‘‘(ii) the shareholders or the board of directors of a party to the reorganization approved the trans- action.’’ 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 1987 AMENDMENT Amendment by Pub. L. 100–203 applicable to distribu- tions or transfers after Dec. 15, 1987, with exceptions for certain distributee corporations and distributions cov- ered by prior transition rule, see section 10223(d) of Pub. L. 100–203, set out as a note under section 304 of this title. EFFECTIVE DATE Section applicable to any distribution in complete liquidation, and any sale or exchange, made by a cor- poration after July 31, 1986, unless such corporation is completely liquidated before Jan. 1, 1987, any trans- action described in section 338 of this title for which the acquisition date occurs after Dec. 31, 1986, and any distribution, not in complete liquidation, made after Dec. 31, 1986, with exceptions and special and transi- tional rules, see section 633 of Pub. L. 99–514, set out as a note under section 336 of this title. § 338. Certain stock purchases treated as asset acquisitions (a) General rule For purposes of this subtitle, if a purchasing corporation makes an election under this sec- tion (or is treated under subsection (e) as having made such an election), then, in the case of any qualified stock purchase, the target corpora- tion— (1) shall be treated as having sold all of its assets at the close of the acquisition date at fair market value in a single transaction, and (2) shall be treated as a new corporation which purchased all of the assets referred to in paragraph (1) as of the beginning of the day after the acquisition date. (b) Basis of assets after deemed purchase (1) In general For purposes of subsection (a), the assets of the target corporation shall be treated as pur- chased for an amount equal to the sum of— (A) the grossed-up basis of the purchasing corporation’s recently purchased stock, and (B) the basis of the purchasing corpora- tion’s nonrecently purchased stock. (2) Adjustment for liabilities and other rel- evant items The amount described in paragraph (1) shall be adjusted under regulations prescribed by the Secretary for liabilities of the target cor- poration and other relevant items. (3) Election to step-up the basis of certain tar- get stock (A) In general Under regulations prescribed by the Sec- retary, the basis of the purchasing corpora- tion’s nonrecently purchased stock shall be