26 U.S.C. § 354 — Exchanges of stock and securities in cer-

Page 1123 TITLE 26—INTERNAL REVENUE CODE § 354 Pub. L. 105–34, title X, § 1012(d), Aug. 5, 1997, 111 Stat. 917, as amended by Pub. L. 105–206, title VI, § 6010(c)(1), July 22, 1998, 112 Stat. 813, provided that: ‘‘(1) SECTION 355 RULES.—The amendments made by subsections (a) and (b) [amending sections 355 and 358 of this title] shall apply to distributions after April 16, 1997; except that the amendment made by subsection (a) [amending section 355 of this title] shall apply to such distributions only if pursuant to a plan (or series of related transactions) which involves an acquisition described in section 355(e)(2)(A)(ii) of the Internal Rev- enue Code of 1986 occurring after such date. ‘‘(2) DIVISIVE TRANSACTIONS.—The amendments made by subsection (c) [amending this section and section 368 of this title] shall apply to transfers after the date of the enactment of this Act [Aug. 5, 1997]. ‘‘(3) TRANSITION RULE.—The amendments made by this section [amending this section and sections 355, 358, and 368 of this title] shall not apply to any distribu- tion pursuant to a plan (or series of related trans- actions) which involves an acquisition described in sec- tion 355(e)(2)(A)(ii) of the Internal Revenue Code of 1986 (or, in the case of the amendments made by subsection (c), any transfer) occurring after April 16, 1997, if such acquisition or transfer is— ‘‘(A) made pursuant to an agreement which was binding on such date and at all times thereafter, ‘‘(B) described in a ruling request submitted to the Internal Revenue Service on or before such date, or ‘‘(C) described on or before such date in a public an- nouncement or in a filing with the Securities and Ex- change Commission required solely by reason of the acquisition or transfer. This paragraph shall not apply to any agreement, rul- ing request, or public announcement or filing unless it identifies the acquirer of the distributing corporation or any controlled corporation, or the transferee, which- ever is applicable.’’ Pub. L. 105–34, title X, § 1014(f), Aug. 5, 1997, 111 Stat. 921, provided that: ‘‘(1) IN GENERAL.—The amendments made by this sec- tion [amending this section and sections 354 to 356 and 1036 of this title] shall apply to transactions after June 8, 1997. ‘‘(2) TRANSITION RULE.—The amendments made by this section shall not apply to any transaction after June 8, 1997, if such transaction is— ‘‘(A) made pursuant to a written agreement which was binding on such date and at all times thereafter, ‘‘(B) described in a ruling request submitted to the Internal Revenue Service on or before such date, or ‘‘(C) described on or before such date in a public an- nouncement or in a filing with the Securities and Ex- change Commission required solely by reason of the transaction.’’ EFFECTIVE DATE OF 1989 AMENDMENT Pub. L. 101–239, title VII, § 7203(c), Dec. 19, 1989, 103 Stat. 2334, provided that: ‘‘(1) IN GENERAL.—Except as provided in this sub- section, the amendments made by this section [amend- ing this section] shall apply to transfers after October 2, 1989, in taxable years ending after such date. ‘‘(2) BINDING CONTRACT.—The amendments made by this section shall not apply to any transfer pursuant to a written binding contract in effect on October 2, 1989, and at all times thereafter before such transfer. ‘‘(3) CORPORATE TRANSFERS.—In the case of property transferred (directly or indirectly through a partner- ship or otherwise) by a C corporation, paragraphs (1) and (2) shall be applied by substituting ‘July 11, 1989’ for ‘October 2, 1989’. The preceding sentence shall not apply where the corporation meets the requirements of section 1504(a)(2) of the Internal Revenue Code of 1986 with respect to the transferee corporation (and where the transfer is not part of a plan pursuant to which the transferor subsequently fails to meet such require- ments).’’ EFFECTIVE DATE OF 1988 AMENDMENT Pub. L. 100–647, title I, § 1018(d)(5)(G), Nov. 10, 1988, 102 Stat. 3580, provided that the amendment made by that section is effective with respect to transfers on or after June 21, 1988. EFFECTIVE DATE OF 1982 AMENDMENT Amendment by Pub. L. 97–248 applicable to transfers occurring after Aug. 31, 1982, except for certain trans- fers pursuant to an application to form a BHC filed with the Federal Reserve Board before Aug. 16, 1982, see section 226(c) of Pub. L. 97–248, set out as a note under section 304 of this title. EFFECTIVE DATE OF 1980 AMENDMENT Amendment by Pub. L. 96–589 applicable to trans- actions which occur after Dec. 31, 1980, other than transactions which occur in proceedings in bankruptcy cases or similar judicial proceedings or in proceedings under Title 11, Bankruptcy, commencing on or before Dec. 31, 1980, except as otherwise provided, see section 7 of Pub. L. 96–589, set out as a note under section 108 of this title. EFFECTIVE DATE OF 1976 AMENDMENT Pub. L. 94–455, title XIX, § 1901(a)(48)(C), Oct. 4, 1976, 90 Stat. 1772, provided that: ‘‘The amendments made by this paragraph [amending this section] shall take effect with respect to transfers of property occurring after the date of the enactment of this Act [Oct. 4, 1976].’’ EFFECTIVE DATE OF 1966 AMENDMENT Pub. L. 89–809, title II, § 203(c), Nov. 13, 1966, 80 Stat. 1577, provided that: ‘‘The amendments made by sub- sections (a) and (b) [amending this section] shall apply with respect to transfers of property to investment companies whether made before, on, or after the date of the enactment of this Act [Nov. 13, 1966].’’ SUBPART B—EFFECTS ON SHAREHOLDERS AND SECURITY HOLDERS Sec. 354. Exchanges of stock and securities in certain reorganizations. 355. Distribution of stock and securities of a con- trolled corporation. 356. Receipt of additional consideration. 357. Assumption of liability. 358. Basis to distributees. § 354. Exchanges of stock and securities in cer- tain 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 re- organization 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 se- curities 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 sec- tion 356 as relates to paragraph (1) shall apply to the extent that any stock (includ- ing nonqualified preferred stock, as defined in section 351(g)(2)), securities, or other Page 1124 TITLE 26—INTERNAL REVENUE CODE § 354 1 See References in Text note below. property received is attributable to interest which has accrued on securities on or after the beginning of the holder’s holding period. (C) Nonqualified preferred stock (i) In general Nonqualified preferred stock (as defined in section 351(g)(2)) received in exchange for stock other than nonqualified preferred stock (as so defined) shall not be treated as stock or securities. (ii) Recapitalizations of family-owned cor- porations (I) In general Clause (i) shall not apply in the case of a recapitalization under section 368(a)(1)(E) of a family-owned corpora- tion. (II) Family-owned corporation For purposes of this clause, except as provided in regulations, the term ‘‘fam- ily-owned corporation’’ means any cor- poration which is described in clause (i) of section 447(d)(2)(C) 1 throughout the 8- year period beginning on the date which is 5 years before the date of the recapi- talization. For purposes of the preceding sentence, stock shall not be treated as owned by a family member during any period described in section 355(d)(6)(B). (III) Extension of statute of limitations The statutory period for the assess- ment of any deficiency attributable to a corporation failing to be a family-owned corporation shall not expire before the expiration of 3 years after the date the Secretary is notified by the corporation (in such manner as the Secretary may prescribe) of such failure, and such defi- ciency may be assessed before the expi- ration of such 3-year period notwith- standing the provisions of any other law or rule of law which would otherwise pre- vent such assessment. (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 nonqualified pre- ferred stock and an excess principal amount of se- curities 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 ex- change in pursuance of a plan of reorganiza- tion 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 prop- erties received by such transferor, as well as the other properties of such transferor, are distributed in pursuance of the plan of reor- ganization. (2) Cross reference For special rules for certain exchanges in pursu- ance 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 (wheth- er or not a reorganization within the meaning of section 368(a)) for a railroad confirmed under section 1173 of title 11 of the United States Code, as being in the public interest. (Aug. 16, 1954, ch. 736, 68A Stat. 112; Pub. L. 94–253, § 1(c), Mar. 31, 1976, 90 Stat. 296; Pub. L. 95–473, § 2(a)(2)(F), Oct. 17, 1978, 92 Stat. 1465; Pub. L. 96–589, §§ 4(e)(1), (h)(1), 6(i)(2), Dec. 24, 1980, 94 Stat. 3403, 3404, 3410; Pub. L. 101–508, title XI, § 11801(c)(8)(D), Nov. 5, 1990, 104 Stat. 1388–524; Pub. L. 104–88, title III, § 304(c), Dec. 29, 1995, 109 Stat. 944; Pub. L. 105–34, title X, § 1014(b), (e)(1), (2), Aug. 5, 1997, 111 Stat. 920, 921; Pub. L. 105–206, title VI, § 6010(e)(2), July 22, 1998, 112 Stat. 814.) Editorial Notes REFERENCES IN TEXT Section 447(d), referred to in subsec. (a)(2)(C)(ii)(II), was repealed and provisions not relating to family- owned corporations were redesignated as section 447(d) by Pub. L. 115–97, title I, § 13102(a)(5)(C), Dec. 22, 2017, 131 Stat. 2103. AMENDMENTS 1998—Subsec. (a)(2)(C)(ii)(III). Pub. L. 105–206 added subcl. (III). 1997—Subsec. (a)(2)(B). Pub. L. 105–34, § 1014(e)(1), in- serted ‘‘(including nonqualified preferred stock, as de- fined in section 351(g)(2))’’ after ‘‘stock’’. Subsec. (a)(2)(C). Pub. L. 105–34, § 1014(b), added sub- par. (C). Subsec. (a)(3)(A). Pub. L. 105–34, § 1014(e)(2), inserted ‘‘nonqualified preferred stock and’’ after ‘‘subsection (including’’. 1995—Subsec. (c). Pub. L. 104–88 struck out ‘‘or ap- proved by the Interstate Commerce Commission under subchapter IV of chapter 113 of title 49,’’ after ‘‘Code,’’. 1990—Subsec. (d). Pub. L. 101–508 struck out subsec. (d) ‘‘Exchanges under the final system plan for ConRail’’ which read as follows: ‘‘No gain or loss shall be recognized if stock or securities in a corporation are, in pursuance of an exchange to which paragraph (1) or (2) of section 374(c) applies, exchanged solely for stock of the Consolidated Rail Corporation, securities of such Corporation, certificates of value of the United States Railway Association, or any combination thereof.’’ 1980—Subsec. (a)(2). Pub. L. 96–589, § 4(e)(1), redesig- nated existing pars. (A) and (B) as par. (A)(i), (ii), and added par. (B). Subsec. (a)(3). Pub. L. 96–589, § 4(e)(1), designated ex- isting provisions as subpar. (A), inserted provisions ex- cluding property to which paragraph (2)(B) applies, and added subpar. (B). Subsec. (b). Pub. L. 96–589, § 4(h)(1), substituted ‘‘sub- paragraph (D) or (G) of section 368(a)(1)’’ for ‘‘section 368(a)(1)(D)’’, wherever appearing. Subsec. (c). Pub. L. 96–589, § 6(i)(2), substituted ‘‘con- firmed under section 1173 of title 11 of the United States Code, or approved by the Interstate Commerce Commission’’ for ‘‘approved by the Interstate Com- Page 1125 TITLE 26—INTERNAL REVENUE CODE § 355 merce Commission under section 77 of the Bankruptcy Act, or’’. 1978—Subsec. (c). Pub. L. 95–473 substituted ‘‘sub- chapter IV of chapter 113 of title 49’’ for ‘‘section 20b of the Interstate Commerce Act’’. 1976—Subsec. (d). Pub. L. 94–253 added subsec. (d). Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1998 AMENDMENT Amendment by Pub. L. 105–206 effective, except as otherwise provided, as if included in the provisions of the Taxpayer Relief Act of 1997, Pub. L. 105–34, to which such amendment relates, see section 6024 of Pub. L. 105–206, set out as a note under section 1 of this title. EFFECTIVE DATE OF 1997 AMENDMENT Amendment by Pub. L. 105–34 applicable, with certain exceptions, to transactions after June 8, 1997, see sec- tion 1014(f) of Pub. L. 105–34, set out as a note under section 351 of this title. EFFECTIVE DATE OF 1995 AMENDMENT Amendment by Pub. L. 104–88 effective Jan. 1, 1996, see section 2 of Pub. L. 104–88, set out as an Effective Date note under section 1301 of Title 49, Transpor- tation. EFFECTIVE DATE OF 1980 AMENDMENT Amendment by section 4(e)(1) of Pub. L. 96–589 appli- cable to bankruptcy cases or similar judicial pro- ceedings commencing after Dec. 31, 1980, and to ex- changes which occur after Dec. 31, 1980, and which do not occur in a bankruptcy case or similar judicial pro- ceeding or in a proceeding under Title 11, Bankruptcy, commenced on or before Dec. 31, 1980, with an exception permitting the debtor to make the amendment applica- ble to such cases, proceedings or exchanges com- mencing after Sept. 30, 1979, see section 7(c), (f) of Pub. L. 96–589, set out as a note under section 108 of this title. Amendment by section 4(h)(1) of Pub. L. 96–589 appli- cable to bankruptcy cases or similar judicial pro- ceedings commencing after Dec. 31, 1980, with an excep- tion permitting the debtor to make the amendment ap- plicable to such cases or proceedings commencing after Sept. 30, 1979, see section 7(c)(1), (f) of Pub. L. 96–589, set out as a note under section 108 of this title. Amendment by section 6(i)(2) of Pub. L. 96–589 effec- tive Oct. 1, 1979, but not applicable to any proceeding under Title 11 commenced before Oct. 1, 1979, see sec- tion 7(e) of Pub. L. 96–589, set out as a note under sec- tion 108 of this title. EFFECTIVE DATE OF 1976 AMENDMENT Pub. L. 94–253, § 2, Mar. 31, 1976, 90 Stat. 297, provided that: ‘‘The amendments made by section 1 [amending this section and sections 356, 358, and 374 of this title] shall apply to taxable years ending after March 31, 1976.’’ SAVINGS PROVISION For provisions that nothing in amendment by Pub. L. 101–508 be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to Nov. 5, 1990, for purposes of determining liabil- ity for tax for periods ending after Nov. 5, 1990, see sec- tion 11821(b) of Pub. L. 101–508, set out as a note under section 45K of this title. ABOLITION OF UNITED STATES RAILWAY ASSOCIATION AND TRANSFER OF FUNCTIONS United States Railway Association abolished effec- tive Apr. 1, 1987, all powers, duties, rights, and obliga- tions of Association relating to Consolidated Rail Cor- poration under Regional Rail Reorganization Act of 1973 (45 U.S.C. 701 et seq.) transferred to Secretary of Transportation on Jan. 1, 1987, and any securities of Corporation held by Association transferred to Sec- retary of Transportation on Oct. 21, 1986, see section 1341 of Title 45, Railroads. § 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 sec- tion as the ‘‘distributing corporation’’)— (i) distributes to a shareholder, with re- spect 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 prin- cipally as a device for the distribution of the earnings and profits of the distributing cor- poration 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 ex- changed by all or some of the distributees (other than pursuant to an arrangement ne- gotiated or agreed upon prior to such dis- tribution) shall not be construed to mean that the transaction was used principally as such a device), (C) the requirements of subsection (b) (re- lating to active businesses) are satisfied, and (D) as part of the distribution, the distrib- uting corporation distributes— (i) all of the stock and securities in the controlled corporation held by it imme- diately 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 es- tablished to the satisfaction of the Sec- retary that the retention by the distrib- uting 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 re- gard 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 surren- ders stock in the distributing corporation, and (C) whether or not the distribution is in pursuance of a plan of reorganization (with- in the meaning of section 368(a)(1)(D)). (3) Limitations (A) Excess principal amount Paragraph (1) shall not apply if—