Internal Revenue Code:Sec. 311. Taxability of corporation on distribution
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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 I - DISTRIBUTIONS BY CORPORATIONS
Subpart B - Effects on Corporation
Statute
Sec. 311. Taxability of corporation on distribution
(a) General rule
Except as provided in subsection (b), no gain or loss shall be
recognized to a corporation on the distribution (not in complete
liquidation) with respect to its stock of -
(1) its stock (or rights to acquire its stock), or
(2) property.
(b) Distributions of appreciated property
(1) In general
If -
(A) a corporation distributes property (other than an
obligation of such corporation) to a shareholder in a
distribution to which subpart A applies, and
(B) 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.
(2) Treatment of liabilities
Rules similar to the rules of section 336(b) shall apply for
purposes of this subsection.
(3) Special rule for certain distributions of partnership or
trust interests
If the property distributed consists of an interest in a
partnership or trust, the Secretary may by regulations provide
that the amount of the gain recognized under paragraph (1) shall
be computed without regard to any loss attributable to property
contributed to the partnership or trust for the principal purpose
of recognizing such loss on the distribution.
Sources
(Aug. 16, 1954, ch. 736, 68A Stat. 94; Pub. L. 91-172, title IX,
Sec. 905(a), (b)(1), Dec. 30, 1969, 83 Stat. 713, 714; Pub. L.
94-452, Sec. 2(b), Oct. 2, 1976, 90 Stat. 1511; Pub. L. 94-455,
title XIX, Sec. 1901(a)(42)(A), (B)(i), (C), Oct. 4, 1976, 90 Stat.
1771; Pub. L. 95-600, title VII, Sec. 703(j)(2)(A), (B), Nov. 6,
1978, 92 Stat. 2941; Pub. L. 96-471, Sec. 2(b)(1), Oct. 19, 1980,
94 Stat. 2253; Pub. L. 97-248, title II, Sec. 223(a), Sept. 3,
1982, 96 Stat. 483; Pub. L. 98-369, div. A, title I, Sec. 54(a),
title VII, Sec. 712(j), July 18, 1984, 98 Stat. 568, 948; Pub. L.
99-514, title VI, Sec. 631(c), Oct. 22, 1986, 100 Stat. 2272; Pub.
L. 100-647, title I, Sec. 1006(e)(8)(B), (21)(B), 1018(d)(5)(E),
Nov. 10, 1988, 102 Stat. 3401, 3403, 3580.)
Miscellaneous
AMENDMENTS
1988 - Subsec. (a). Pub. L. 100-647, Sec. 1018(d)(5)(E),
substituted ''distribution (not in complete liquidation) with
respect to its stock'' for ''distribution, with respect to its
stock,''.
Subsec. (b)(2). Pub. L. 100-647, Sec. 1006(e)(21)(B), substituted
''liabilities'' for ''liabilities in excess of basis'' in heading.
Subsec. (b)(3). Pub. L. 100-647, Sec. 1006(e)(8)(B), added par.
(3).
1986 - Pub. L. 99-514 amended section generally, substituting
provisions relating to distributions of appreciated property for
provisions relating to LIFO inventory, liability in excess of
basis, and appreciated property used to redeem stock.
1984 - Subsec. (d). Pub. L. 98-369, Sec. 54(a)(3), substituted
''Distributions of appreciated property'' for ''Appreciated
property used to redeem stock'' in heading.
Subsec. (d)(1). Pub. L. 98-369, Sec. 54(a)(1), substituted ''This
subsection shall be applied after the applications of subsections
(b) and (c)'' for ''Subsections (b) and (c) shall not apply to any
distribution to which this subsection applies'' in provisions
following subpar. (B).
Subsec. (d)(1)(A). Pub. L. 98-369, Sec. 54(a)(1), struck out ''of
part or all of his stock in such corporation'' before ''and''.
Subsec. (d)(2)(A). Pub. L. 98-369, Sec. 54(a)(2)(A), substituted
provisions relating to a distribution which is made with respect to
qualified stock if section 302(b)(4) applies to such distribution
or such distribution is a qualified distribution for provisions
which had related to a distribution to a corporate shareholder if
the basis of the property distributed was determined under section
301(d)(2).
Subsec. (d)(2)(B) to (F). Pub. L. 98-369, Sec. 54(a)(2)(A), (B),
redesignated subpars. (C) to (F) as (B) to (E), respectively, and
struck out former subpar. (B) which related to distributions to
which section 302(b)(4) applied and which were made with respect to
qualified stock.
Subsec. (e)(1)(C). Pub. L. 98-369, Sec. 712(j), added subpar.
(C).
Subsec. (e)(3). Pub. L. 98-369, Sec. 54(a)(2)(C), added par. (3).
1982 - Subsec. (d)(2)(A). Pub. L. 97-248, Sec. 223(a)(1),
substituted reference to a distribution to a corporate shareholder
if the basis of the property distributed is determined under
section 301(d)(2) for reference to a distribution in complete
redemption of all of the stock of a shareholder who, at all times
within the 12-month period ending on the date of such distribution
owned at least 10 percent in value of the outstanding stock of the
distributing corporation, but only if the redemption qualified
under section 302(b)(3) (determined without the application of
section 302(c)(2)(A)(ii)).
Subsec. (d)(2)(B). Pub. L. 97-248, Sec. 223(a)(1), substituted
reference to a distribution to which section 302(b)(4) applies and
which is made with respect to qualified stock for reference to a
distribution of stock or an obligation of a corporation, which was
engaged in at least one trade or business, which had not received
property constituting a substantial part of its assets from the
distributing corporation, in a transaction to which section 351
applied or as a contribution to capital, within the 5-year period
ending on the date of the distribution, and at least 50 percent in
value of the outstanding stock of which was owned by the
distributing corporation at any time within the 9-year period
ending one year before the date of the distribution.
Subsec. (d)(2)(C). Pub. L. 97-248, Sec. 223(a)(1), substituted
reference to a distribution of stock or an obligation of a
corporation if the requirements of subsec. (e)(2) of this section
are met with respect to the distribution for reference to a
distribution of stock or securities pursuant to the terms of a
final judgment rendered by a court with respect to the distributing
corporation in a court proceeding under the Sherman Act (15 U.S.C.
1-7) or the Clayton Act (15 U.S.C. 12-27), or both, to which the
United States was a party, but only if the distribution of such
stock or securities in redemption of the distributing corporation's
stock was in furtherance of the purposes of the judgment.
Subsec. (d)(2)(G). Pub. L. 97-248, Sec. 223(a)(3), struck out
subpar. (G) which provided that a distribution of stock to a
distributee which is not an organization exempt from tax under
section 501(a) of this title, if with respect to such distributee,
subsec. (a)(1) or (b)(1) of section 1101 of this title applied to
such distribution.
Subsec. (e). Pub. L. 97-248, Sec. 223(a)(2), added subsec. (e).
1980 - Subsec. (a). Pub. L. 96-471 substituted ''section 453B''
for ''Section 453(d)''.
1978 - Subsec. (d)(2)(G), (H). Pub. L. 95-600 redesignated
subpar. (H) as (G).
1976 - Subsec. (d)(1)(B). Pub. L. 94-455, Sec. 1901(a) (42)(A),
substituted ''then a gain shall be recognized'' for ''then again
shall be recognized''.
Subsec. (d)(2). Pub. L. 94-452 and Pub. L. 94-455 Sec.
1901(a)(42)(B)(i), (C), struck out subpar. (C) relating to certain
distributions before Dec. 1, 1974, struck out ''26 Stat. 209;''
before ''15 U.S.C. 1-7)'' and ''38 Stat. 730;'' before ''15 U.S.C.
12-27)'' in subpar. (D), added subpar. (H), and redesignated
subpars. (D) to (G), as so amended, as subpars. (C) to (F),
respectively.
1969 - Subsec. (a). Pub. L. 91-172, Sec. 905(b)(1), inserted
reference to subsec. (d).
Subsec. (d). Pub. L. 91-172, Sec. 905(a), added subsec. (d).
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
Amendment by Pub. L. 99-514 applicable to any distribution in
complete liquidation, and any sale or exchange, made by a
corporation after July 31, 1986, unless such corporation is
completely liquidated before Jan. 1, 1987, any transaction
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 transitional rules, see section 633 of Pub. L. 99-514,
set out as an Effective Date note under section 336 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 54(d) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, title XVIII, Sec. 1804(b)(3), Oct. 22, 1986, 100 Stat.
2095, 2799; Pub. L. 100-647, title I, Sec. 1018(d)(1)-(3), Nov. 10,
1988, 102 Stat. 3578, provided that:
''(1) Subsection (a). - Except as otherwise provided in this
subsection, the amendments made by subsection (a) (amending this
section) shall apply to distributions declared on or after June 14,
1984, in taxable years ending after such date.
''(2) Subsection (b). - The amendment made by subsection (b)
(amending section 301 of this title) shall apply to distributions
after the date of the enactment of this Act (July 18, 1984) in
taxable years ending after such date.
''(3) Exception for distributions before january 1, 1985, to
80-percent corporate shareholders. -
''(A) In general. - The amendments made by subsection (a) shall
not apply to any distribution before January 1, 1985, to an
80-percent corporate shareholder if the basis of the property
distributed is determined under section 301(d)(2) of the Internal
Revenue Code of 1986 (formerly I.R.C. 1954).
''(B) 80-percent corporate shareholder. - The term '80-percent
corporate shareholder' means, with respect to any distribution,
any corporation which owns -
''(i) stock in the corporation making the distribution
possessing at least 80 percent of the total combined voting
power of all classes of stock entitled to vote, and
''(ii) at least 80 percent of the total number of shares of
all other classes of stock of the distributing corporation
(except nonvoting stock which is limited and preferred as to
dividends).
''(C) Special rule for affiliated group filing consolidated
return. - For purposes of this paragraph and paragraph (4), all
members of the same affiliated group (as defined in section 1504
of the Internal Revenue Code of 1986) which file a consolidated
return for the taxable year which includes the date of the
distribution shall be treated as 1 corporation.
''(D) Special rule for certain distributions before january 1,
1988. -
''(i) In general. - In the case of a transaction to which
this subparagraph applies, subparagraph (A) shall be applied by
substituting '1988' for '1985' and the amendments made by
subtitle D of title VI of the Tax Reform Act of 1986 (sections
631 to 634 of Pub. L. 99-514, enacting sections 336 and 337 of
this title, amending this section and sections 26, 312, 332,
334, 338, 341, 346, 367, 453, 453B, 467, 852, 897, 1056, 1248,
1255, 1276, 1363, 1366, 1374, and 1375 of this title, repealing
sections 333, 336, and 337 of this title, and enacting
provisions set out as a note under section 301 of this title)
shall not apply.
''(ii) Transaction to which subparagaph (sic) applies. - This
subparagraph appies (applies) to a transaction in which a
Delaware corporation which was incorporated on May 31, 1927,
and which was acquired by the transferee on December 10, 1968,
transfers to the transferee stock in a corporation -
''(I) with respect to which such Delaware corporation is a
100-percent corporate shareholder, and
''(II) which is a Tennessee corporation which was
incorporated on March 2, 1978,, (sic) and which is a
successor to an Indiana corporation which was incorporated on
June 28, 1946, and acquired by the transferee on December 9
(10), 1968.
''(4) Exception for certain distributions where tender offer
commenced on may 23, 1984. -
''(A) In general. - The amendments made by subsection (a) shall
not apply to any distribution made before September 1, 1986, if -
''(i) such distribution consists of qualified stock held
(directly or indirectly) on June 15, 1984, by the distributing
corporation,
''(ii) control of the distributing corporation (as defined in
section 368(c) of the Internal Revenue Code of 1986) is
acquired other than in a tax-free transaction after January 1,
1984, but before January 1, 1985,
''(iii) a tender offer for the shares of the distributing
corporation was commenced on May 23, 1984, and was amended on
May 24, 1984, and
''(iv) the distributing corporation and the distributee
corporation are members of the same affiliated group (as
defined in section 1504 of such Code) which filed a
consolidated return for the taxable year which includes the
date of the distribution.
If the common parent of any affiliated group filing a consolidated
return meets the requirements of clauses (ii) and (iii), each other
member of such group shall be treated as meeting such requirements.
''(B) Qualified stock. - For purposes of subparagraph (A), the
term 'qualified stock' means any stock in a corporation which on
June 15, 1984, was a member of the same affiliated group as the
distributing corporation and which filed a consolidated return
with the distributing corporation for the taxable year which
included June 15, 1984.
''(5) Exception for certain distributions. -
''(A) In general. - The amendments made by this section
(amending this section and sections 301 and 1223 of this title)
shall not apply to distributions before February 1, 1986, if -
''(i) the distribution consists of property held on March 7,
1984 (or property acquired thereafter in the ordinary course of
a trade or business) by -
''(I) the controlled corporation, or
''(II) any subsidiary controlled corporation,
''(ii) a group of 1 or more shareholders (acting in concert)
-
''(I) acquired, during the 1-year period ending on February
1, 1984, at least 10 percent of the outstanding stock of the
controlled corporation,
''(II) held at least 10 percent of the outstanding stock of
the common parent on February 1, 1984, and
''(III) submitted a proposal for distributions of interests
in a royalty trust from the common parent or the controlled
corporation, and
''(iii) the common parent acquired control of the controlled
corporation during the 1-year period ending on February 1,
1984.
''(B) Definitions. - For purposes of this paragraph -
''(i) The term 'common parent' has the meaning given such
term by section 1504(a) of the Internal Revenue Code of 1986.
''(ii) The term 'controlled corporation' means a corporation
with respect to which 50 percent or more of the outstanding
stock of its common parent is tendered for pursuant to a tender
offer outstanding on March 7, 1984.
''(iii) The term 'subsidiary controlled corporation' means
any corporation with respect to which the controlled
corporation has control (within the meaning of section 368(c)
of such Code) on March 7, 1984.
''(6) Exception for certain distribution of partnership
interests. - The amendments made by this section shall not apply to
any distribution before February 1, 1986, of an interest in a
partnership the interests of which were being traded on a national
securities exchange on March 7, 1984, if -
''(A) such interest was owned by the distributing corporation
(or any member of an affiliated group within the meaning of
section 1504(a) of such Code of which the distributing
corporation was a member) on March 7, 1984,
''(B) the distributing corporation (or any such affiliated
member) owned more than 80 percent of the interests in such
partnership on March 7, 1984, and
''(C) more than 10 percent of the interests in such partnership
was offered for sale to the public during the 1-year period
ending on March 7, 1984.''
Amendment by section 712(j) of Pub. L. 98-369 effective as if
included in the provision of the Tax Equity and Fiscal
Responsibility Act of 1982, Pub. L. 97-248, to which such amendment
relates, see section 715 of Pub. L. 98-369, set out as a note under
section 31 of this title.
EFFECTIVE DATE OF 1982 AMENDMENTS; EXCEPTIONS
Section 223(b) of Pub. L. 97-248, as amended by Pub. L. 97-448,
title III, Sec. 306(a)(7), Jan. 12, 1983, 96 Stat. 2402; Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
''(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section (amending this
section) shall apply to distributions after August 31, 1982.
''(2) Distributions pursuant to ruling requests before july 23,
1982. - In the case of a ruling request under section 311(d)(2)(A)
of the Internal Revenue Code of 1986 (formerly I.R.C. 1954) (as in
effect before the amendments made by this section) made before July
23, 1982, the amendments made by this section (amending this
section) shall not apply to distributions made -
''(A) pursuant to a ruling granted pursuant to such request,
and
''(B) either before October 21, 1982, or within 90 days after
the date of such ruling.
''(3) Distributions pursuant to final judgments of court. - In
the case of a final judgment described in section 311(d)(2)(C) of
such Code (as in effect before the amendments made by this section)
rendered before July 23, 1982, the amendments made by this section
(amending this section) shall not apply to distributions made
before January 1, 1986, pursuant to such judgment.
''(4) Certain distributions with respect to stock acquired before
may 1982. - The amendments made by this section (amending this
section) shall not apply to distributions -
''(A) which meet the requirements of section 311(d)(2)(A) of
such Code (as in effect on the day before the date of the
enactment of this Act (Sept. 3, 1982)),
''(B) which are made on or before August 31, 1983, and
''(C) which are made with respect to stock acquired after 1980
and before May 1982.
''(5) Distributions of timberland with respect to stock of forest
products company. - If -
''(A) a forest products company distributes timberland to a
shareholder in redemption of the common and preferred stock in
such corporation held by such shareholder,
''(B) section 311(d)(2)(A) of the Internal Revenue Code of 1986
(as in effect before the amendments made by this section) would
have applied to such distributions, and
''(C) such distributions are made pursuant to 1 of 2 options
contained in a contract between such company and such shareholder
which is binding on August 31, 1982, and at all times thereafter,
then such distributions of timberland having an aggregate fair
market value on August 31, 1982, not in excess of $10,000,000 shall
be treated as distributions to which section 311(d)(2)(A) of such
Code (as in effect before the date of the enactment of this Act
(Sept. 3, 1982) applies.''
EFFECTIVE DATE OF 1980 AMENDMENT
For effective date of amendment by Pub. L. 96-471, see section
6(a)(1) of Pub. L. 96-471, set out as an Effective Date note under
section 453 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Section 703(j)(2)(C) of Pub. L. 95-600 provided that: ''The
amendments made by this paragraph (amending this section) shall
take effect as if included in section 2(b) of the Bank Holding
Company Tax Act of 1976 (amending this section).''
EFFECTIVE DATE OF 1976 AMENDMENTS
Amendment by section 1901(a)(42)(A), (C) of Pub. L. 94-455
effective for taxable years beginning after Dec. 31, 1976, see
section 1901(d) of Pub. L. 94-455, set out as a note under section
2 of this title.
Section 1901(a)(42)(B)(ii) of Pub. L. 94-455 provided that: ''The
amendments made by clause (i) (amending this section) shall apply
only with respect to distributions after November 30, 1974.''
Section 2(d)(4) of Pub. L. 94-452 provided that: ''The amendment
made by subsection (b) (amending this section) shall take effect on
October 1, 1977, with respect to distributions after December 31,
1975, in taxable years ending after December 31, 1975.''
EFFECTIVE DATE OF 1969 AMENDMENT
Section 905(c) of Pub. L. 91-172, as amended by Pub. L. 91-675,
Jan. 12, 1971, 84 Stat. 2059, provided that:
''(1) Except as provided in paragraphs (2), (3), (4), and (5),
the amendments made by subsections (a) and (b) (amending this
section and sections 301 and 312 of this title) shall apply with
respect to distributions after November 30, 1969.
''(2) The amendments made by subsections (a) and (b) shall not
apply to a distribution before April 1, 1970, pursuant to the terms
of -
''(A) a written contract which was binding on the distributing
corporation on November 30, 1969, and at all times thereafter
before the distribution,
''(B) an offer made by the distributing corporation before
December 1, 1969,
''(C) an offer made in accordance with a request for a ruling
filed by the distributing corporation with the Internal Revenue
Service before December 1, 1969, or
''(D) an offer made in accordance with a registration statement
filed with the Securities and Exchange Commission before December
1, 1969.
For purposes of subparagraphs (B), (C), and (D), an offer shall be
treated as an offer only if it was in writing and not revocable by
its express terms.
''(3) The amendments made by subsections (a) and (b) shall not
apply to a distribution by a corporation of specific property in
redemption of stock outstanding on November 30, 1969, if -
''(A) every holder of such stock on such date had the right to
demand redemption of his stock in such specific property, and
''(B) the corporation had such specific property on hand on
such date in a quantity sufficient to redeem all of such stock.
For purposes of the preceding sentence, stock shall be considered
to have been outstanding on November 30, 1969, if it could have
been acquired on such date through the exercise of an existing
right of conversion contained in other stock held on such date.
''(4) The amendments made by subsections (a) and (b) shall not
apply to a distribution by a corporation of property (held on
December 1, 1969, by the distributing corporation or a corporation
which was a wholly owned subsidiary of the distributing corporation
on such date) in redemption of stock outstanding on November 30,
1969, which is redeemed and canceled before July 31, 1971, if -
''(A) such redemption is pursuant to a resolution adopted
before November 1, 1969, by the Board of Directors authorizing
the redemption of a specific amount of stock constituting more
than 10 percent of the outstanding stock of the corporation at
the time of the adoption of such resolution; and
''(B) more than 40 percent of the stock authorized to be
redeemed pursuant to such resolution was redeemed before December
30, 1969, and more than one-half of the stock so redeemed was
redeemed with property other than money.
''(5) The amendments made by subsections (a) and (b) shall not
apply to a distribution of stock, by a corporation organized prior
to December 1, 1969, for the principal purpose of providing an
equity participation plan for employees of the corporation whose
stock is being distributed (hereinafter referred to as the
'employer corporation') if -
''(A) the stock being distributed was owned by the distributing
corporation on November 30, 1969,
''(B) the stock being redeemed was acquired before January 1,
1973, pursuant to such equity participation plan by the
shareholder presenting such stock for redemption (or by a
predecessor of such shareholder),
''(C) the employment of the shareholder presenting the stock
for redemption (or the predecessor of such shareholder) by the
employer corporation commenced before January 1, 1971,
''(D) at least 90 percent in value of the assets of the
distributing corporation on November 30, 1969, consisted of
common stock of the employer corporation, and
''(E) at least 50 percent of the outstanding voting stock of
the employer corporation is owned by the distributing corporation
at any time within the nine-year period ending one year before
the date of such distribution.''
References
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 351, 355, 361, 646, 852,
1248 of this title.
