Internal Revenue Code:Sec. 361. Nonrecognition of gain or loss to corporations; treatment of distributions
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Location in Internal Revenue Code
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter C - Corporate Distributions and Adjustments
PART III - CORPORATE ORGANIZATIONS AND REORGANIZATIONS
Subpart C - Effects on Corporation
Statute
Sec. 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). 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 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).
Sources
(Aug. 16, 1954, ch. 736, 68A Stat. 118; Pub. L. 99-514, title
XVIII, Sec. 1804(g)(1), Oct. 22, 1986, 100 Stat. 2805; Pub. L.
100-647, title I, Sec. 1018(d)(5)(A), Nov. 10, 1988, 102 Stat.
3578; Pub. L. 101-508, title XI, Sec. 11321(b), Nov. 5, 1990, 104
Stat. 1388-463.)
Miscellaneous
AMENDMENTS
2004 - Subsec.898(a),Pub.L.108-357, amended Sec.361(b)(3)
by adding at the end the following new sentence: "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."
1990 - Subsec. (c)(5). Pub. L. 101-508 added par. (5).
1988 - Pub. L. 100-647 substituted ''corporations; treatment of
distributions'' for ''transferor corporations; other treatment of
transferor corporation; etc.'' in section 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 reorganization exchanged
property, pursuant to plan of reorganization, for stock or
securities in another corporation which was party to the
reorganization or for other property or money.
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by Pub. L. 101-508 applicable to distributions after
Oct. 9, 1990, but not applicable to any distribution pursuant to a
written binding contract in effect 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
Section 1804(g)(4) of Pub. L. 99-514 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 (Sec. 1101-1147 and 1171-1177) or title
XVIII (Sec. 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.
References
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 168, 197, 332, 341, 355,
357, 358, 367, 381, 1245, 1248, 1250, 6038B of this title.
