Internal Revenue Code:Sec. 332. Complete liquidations of subsidiaries

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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 II - CORPORATE LIQUIDATIONS
          Subpart A - Effects on Recipients
        

Statute

    Sec. 332. Complete liquidations of subsidiaries
 
    (a) General rule
      No gain or loss shall be recognized on the receipt by a
    corporation of property distributed in complete liquidation of
    another corporation.
    (b) Liquidations to which section applies
      For purposes of this section, a distribution shall be considered
    to be in complete liquidation only if -
        (1) the corporation receiving such property was, on the date of
      the adoption of the plan of liquidation, and has continued to be
      at all times until the receipt of the property, the owner of
      stock (in such other corporation) meeting the requirements of
      section 1504(a)(2); and either
        (2) the distribution is by such other corporation in complete
      cancellation or redemption of all its stock, and the transfer of
      all the property occurs within the taxable year; in such case the
      adoption by the shareholders of the resolution under which is
      authorized the distribution of all the assets of such corporation
      in complete cancellation or redemption of all its stock shall be
      considered an adoption of a plan of liquidation, even though no
      time for the completion of the transfer of the property is
      specified in such resolution; or
        (3) such distribution is one of a series of distributions by
      such other corporation in complete cancellation or redemption of
      all its stock in accordance with a plan of liquidation under
      which the transfer of all the property under the liquidation is
      to be completed within 3 years from the close of the taxable year
      during which is made the first of the series of distributions
      under the plan, except that if such transfer is not completed
      within such period, or if the taxpayer does not continue
      qualified under paragraph (1) until the completion of such
      transfer, no distribution under the plan shall be considered a
      distribution in complete liquidation.
    If such transfer of all the property does not occur within the
    taxable year, the Secretary may require of the taxpayer such bond,
    or waiver of the statute of limitations on assessment and
    collection, or both, as he may deem necessary to insure, if the
    transfer of the property is not completed within such 3-year
    period, or if the taxpayer does not continue qualified under
    paragraph (1) until the completion of such transfer, the assessment
    and collection of all income taxes then imposed by law for such
    taxable year or subsequent taxable years, to the extent
    attributable to property so received.  A distribution otherwise
    constituting a distribution in complete liquidation within the
    meaning of this subsection shall not be considered as not
    constituting such a distribution merely because it does not
    constitute a distribution or liquidation within the meaning of the
    corporate law under which the distribution is made; and for
    purposes of this subsection a transfer of property of such other
    corporation to the taxpayer shall not be considered as not
    constituting a distribution (or one of a series of distributions)
    in complete cancellation or redemption of all the stock of such
    other corporation, merely because the carrying out of the plan
    involves (A) the transfer under the plan to the taxpayer by such
    other corporation of property, not attributable to shares owned by
    the taxpayer, on an exchange described in section 361, and (B) the
    complete cancellation or redemption under the plan, as a result of
    exchanges described in section 354, of the shares not owned by the
    taxpayer.
    (c) Deductible liquidating distributions of regulated investment
        companies and real estate investment trusts
      If a corporation receives a distribution from a regulated
    investment company or a real estate investment trust which is
    considered under subsection (b) as being in complete liquidation of
    such company or trust, then, notwithstanding any other provision of
    this chapter, such corporation shall recognize and treat as a
    dividend from such company or trust an amount equal to the
    deduction for dividends paid allowable to such company or trust by
    reason of such distribution.
    (d) Recognition of Gain on Liquidation of Certain Holding 
   Companies.--
      (1) In general.--In the case of any distribution to a 
    foreign corporation in complete liquidation of an applicable 
    holding company--
        (A) subsection (a) and section 331 shall not apply 
         to such distribution, and
        (B) such distribution shall be treated as a 
         distribution of property to which section 301 applies.
      (2) Applicable holding company.--For purposes of this 
        subsection:
        (A) In general.--The term `applicable holding 
         company' means any domestic corporation--
         (i) which is a common parent of an 
            affiliated group,
        (ii) stock of which is directly owned by the 
            distributee foreign corporation,
        (iii) substantially all of the assets of 
            which consist of stock in other members of such 
            affiliated group, and
         (iv) which has not been in existence at all 
            times during the 5 years immediately preceding the 
            date of the liquidation.
         (B) Affiliated group.--For purposes of this 
             subsection, the term `affiliated group' has the meaning 
             given such term by section 1504(a) (without regard to 
             paragraphs (2) and (4) of section 1504(b)).
       (3) Coordination with subpart f.--If the distributee of a 
         distribution described in paragraph (1) is a controlled
         foreign corporation (as defined in section 957), then 
         notwithstanding paragraph (1) or subsection (a), such
         distribution shall be treated as a distribution to which 
         section 331 applies.
       (4) Regulations.--The Secretary shall provide such 
         regulations as appropriate to prevent the abuse of this 
         subsection, including regulations which provide, for the 
         purposes of clause (iv) of paragraph (2)(A), that a
         corporation is not in existence for any period unless it is
         engaged in the active conduct of a trade or business or owns a
         significant ownership interest in another corporation so 
         engaged.


 

Sources

    (Aug. 16, 1954, ch. 736, 68A Stat. 102; Pub. L. 94-455, title XIX,
    Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 99-514,
    title VI, Sec. 631(e)(2), title XVIII, Sec. 1804(e)(6)(A), Oct. 22,
    1986, 100 Stat. 2273, 2803; Pub. L. 105-277, div.  J, title III,
    Sec. 3001(a), (b)(1), Oct. 21, 1998, 112 Stat. 2681-904.)
 

Miscellaneous

                                 AMENDMENTS
      2004 - Subsec.893(a).Pub. L. 108-357, Sec. 332 is amended to
    add a new subsection (d) "Recognition of Gain on Liquidation of
    Certain Holding Companies.--".
      1998 - Subsec. (b). Pub. L. 105-277, Sec. 3001(b)(1), substituted
    ''this section'' for ''subsection (a)'' in introductory provisions.
      Subsec. (c). Pub. L. 105-277, Sec. 3001(a), added subsec. (c).
      1986 - Subsec. (b)(1). Pub. L. 99-514, Sec. 1804(e)(6)(A),
    amended par. (1) generally.  Prior to amendment, par. (1) read as
    follows: ''the corporation receiving such property was, on the date
    of the adoption of the plan of liquidation, and has continued to be
    at all times until the receipt of the property, the owner of stock
    (in such other corporation) possessing at least 80 percent of the
    total combined voting power of all classes of stock entitled to
    vote and the owner of at least 80 percent of the total number of
    shares of all other classes of stock (except nonvoting stock which
    is limited and preferred as to dividends); and either''.
      Subsec. (c). Pub. L. 99-514, Sec. 631(e)(2), struck out subsec.
    (c) containing special rule for indebtedness of subsidiary to
    parent in relation to complete liquidations of subsidiaries.
      1976 - Subsec. (b). Pub. L. 94-455 struck out ''or his delegate''
    after ''Secretary''.
                      EFFECTIVE DATE OF 2004 AMENDMENT
      Pub.L.108-357,Sec.893(a), amendments shall apply to distributions
      in complete liquidation occurring on or after the date of the
      enactment of this Act.
                      EFFECTIVE DATE OF 1998 AMENDMENT
      Pub. L. 105-277, div.  J, title III, Sec. 3001(c), Oct. 21, 1998,
    112 Stat. 2681-904, provided that: ''The amendments made by this
    section (amending this section and section 334 of this title) shall
    apply to distributions after May 21, 1998.''
                      EFFECTIVE DATE OF 1986 AMENDMENT
      Amendment by section 631(e)(2) of 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.
      Section 1804(e)(6)(B) of Pub. L. 99-514 provided that:
      ''(i) In general. - Except as provided in clause (iii), the
    amendment made by subparagraph (A) (amending this section) shall
    apply with respect to plans of complete liquidation adopted after
    March 28, 1985.
      ''(ii) Certain distributions made after december 31, 1984. -
    Except as provided in clause (iii), the amendment made by
    subparagraph (A) shall also apply with respect to plans of complete
    liquidations adopted on or before March 28, 1985, pursuant to which
    any distribution is made in a taxable year beginning after December
    31, 1984 (December 31, 1983, in the case of an affiliated group to
    which an election under section 60(b)(7) of the Tax Reform Act of
    1984 (Pub. L. 98-369, set out as a note under section 1504 of this
    title) applies), but only if the liquidating corporation and any
    corporation which receives a distribution in complete liquidation
    of such corporation are members of an affiliated group of
    corporations filing a consolidated return for the taxable year
    which includes the date of the distribution.
      ''(iii) Transitional rule for affiliated groups. - The amendment
    made by subparagraph (A) shall not apply with respect to plans of
    complete liquidation if the liquidating corporation is a member of
    an affiliated group of corporations under section 60(b) (2), (5),
    (6), or (8) of the Tax Reform Act of 1984 (Pub. L. 98-369, set out
    as a note under section 1504 of this title), for all taxable years
    which include the date of any distribution pursuant to such plan.''
             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, 334, 336, 337,
    341, 367, 368, 381, 1245, 1250, 4978, 6038B of this title.