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.