Subchapter C - Corporate Distributions And Adjustments (Overview)

Front 1

Section 301

Back 1

"Distributions of Property"

Distribution of property (FMV less liabilities) or money taxed according to 301(c).

Front 2

Section 302

Back 2

"Distributions in Redemption of Stock"

Some stock redemptions get sale/exchange treatment. (Redemptions not equivalent to dividends, Substantially disproportionate redemption of stock and termination of interest.)

Front 3

Section 303

Back 3

"Distributions in Redemption of Stock to pay Death Taxes"

Certain redemptions to pay shareholder death taxes get sale/exchange treatment.

Front 4

Section 304

Back 4

"Redemption through Use of Related Corporations"

Applies when one corp acquires (for property) the stock of another corp from someone who controls both corps.

Property received by sellers (issuing) treated as distribution in redemption of the stock of the acquiring corporation.

Front 5

Section 305

Back 5

"Distribution of Stock and Stock Rights"

Gross Income doesn't include stock/stock rights transferred from a corporation to its shareholders with respect to that corporation's stock.

Front 6

Section 306

Back 6

"Dispositions of Certain Stock"

Problem: (1) Corp. issues nonvoting, pref. stock to shareholders; (2) shareholders sell to 3rd party for capital gain; (3) Corp. then redeems shares at same price. Ordinary income dividend converted into capital gain.

Section 306 prevents this by having gain treated as “ordinary” income.

Common stock exception: Section 306 doesn't apply to common stock dividend on common stock.

Front 7

Section 307

Back 7

"Basis of Stock and Stock Rights"

The basis of stock rececived by a shareholder under Section 305 gets its basis from the shareholder's existing stock.

Front 8

Section 311

Back 8

"Taxability of Corporation on Distribution"

Inherent gain (not loss) in corporate property is recognized when distributed to shareholders.

Front 9

Section 312

Back 9

"Effect on Earnings and Profits"

Distributions of money, property or obligations of the corporation may reduce the corporation's E&P to the extent of the E&P, but do not create a deficit in E&P.

Front 10

Section 316

Back 10

"Dividend Defined"

A dividend is a distribution of property made by a corporation in the ordinary course of businness to its stockholders out of accumulated or current E&P.

Front 11

Section 317

Back 11

"Other Definitions"

Property: Money, securities, and any other property except corporate stock/stock rights.

Redemption: Corporation acquires its stock from a shareholder for property, whether or not the stock so acquired is cancelled, retired, or held as treasury stock.

Front 12

Section 318

Back 12

"Constructive Ownership of Stock"

You are treated as owning the stock of your spouse, kids, grandkids, and parents.

Pships/beneficiaries own stock (pro rata) held by Pship/Estate.

If you own 50% or more of a orporation, you are treated as owning stock (pro rata) held by corp.

(Pship/Estate/Corp rules run both to and from their owners - e.g., Pship deemed to own stock of partners, etc.)

Front 13

Section 331

Back 13

"Gain or Loss to Shareholders in Corporate Liquidations"

Amounts distributed in complete liquidation of a corporation are treated as in full payment for the stock, generlly 301(c) won't apply.

Front 14

Section 332

Back 14

"Complete Liquidations of Subsidiaries"

No gain or loss shall be recognized on the receipt by a corporation of property distributed in complete liquidation of another corporation.

Front 15

Section 334

Back 15

"Basis in Property Received in Liquidations"

Section 331 gets FMV basis.

Section 332 gets carryover basis.

Front 16

Section 336

Back 16

"Gain or Loss Recognized on Property Distributed to Parent in Complete Liquidation of Subsidiary"

Gain or loss is recognized to a corporation on distributions of property in complete liquidation. The gain or loss is recognized as if the property had been sold to the distributee at its fair market value.

Front 17

Section 337

Back 17

"Nonrecognition for Property Distributed to Parent in Complete Liquidation of Subsidiary"

No gain or loss on distribution of property by an 80% subsidiary if that distribution is part of a complete liquidation of the subsidiary on which the parent does not recognize gain or loss under Code Sec. 332.

Front 18

Section 338

Back 18

"Certain Stock Purchases Treated as Asset Acquistions"

You can elect to treat a stock purchase like an asset purchase:

(1) Section 338(b)(3) Election: Purchaser elects step-up; pays the tax.
(2) Section 338(h)(10) Election: Purchaser and Seller jointly elect step-up; seller pays tax. (Must involve a domestic seller.)

Front 19

Section 346

Back 19

Definition and Special Rule

Provides that one of a series of distributions in redemption of all the distributor corporation's stock under a plan is treated as made in complete liquidation.

Front 20

Section 351

Back 20

"Transfer to Corporation Controlled by Transferor"

No gain/loss for property transferred to a corporation for stock if immediately after the exchange transferor(s) have 368(c) control.

Front 21

Section 354

Back 21

"Exchanges of Stock and Securities in Certain Reorganizations"

Shareholder has no gain/loss in reorganization if he exchanges stock/securities in one corporation solely for stock/securities in the other corporation.

Front 22

Section 355

Back 22

"Distributions of Stock and Securities of a Controlled Corporation"

No gain/loss if a spin-off is not used to bail-out E&P, is an active business, and meets certain other regulatory requirements.

Front 23

Section 356

Back 23

"Receipt of Additional Consideration"

If nonrecognition rules of 354 or 355 would apply to an exchange but for the fact that property other than stock/securities is also received, gain is recognized only up to the sum of the money received and the FMV of the other property.

Front 24

Section 357

Back 24

"Assumption of Liability"

If property in a Section 351/361 comes with liabilities, the liabilities are not boot and don't jeopardize the 351/361.

Note: If Liabilities are greater than FMV of property, gain is recognized under Section 357(c).

Front 25

Section 358

Back 25

"Basis to Distributees"

For 351, 354, 355, 356, 361, basis of property with no gain/loss is the carryover basis less FMV of boot, cash, loss realized Plus dividend amount and gain. Other property received by the taxpayer is FMV basis.

Front 26

Section 361

Back 26

"Nonrecognition of Gain or Loss to Corporations; Treatment of Distributions"

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.

Front 27

Section 362

Back 27

"Basis to Corporations"

If property was received by a corporation: (1) in connection with a transaction to which the controlled corporation rules of Code Sec. 351 apply, or (2) as paid in surplus or as a contribution to capital, the corporation's basis in the property is the same as the transferor's basis in the property increased by the amount of gain recognized by the transferor.

Front 28

Section 367

Back 28

"Foreign Corporations"

This section turns off Sections 332, 351, 354, 356 and 361 for outbound transfers.

Note: Exceptions apply for foreign stock, active trade or business.

Front 29

Section 368

Back 29

"Definitions Relating to Corporate Reorganizations"

A=Statutory Merger;
B=Soley for stock of A;
(B)=Solely for stock of P;
C=Solely for assets of A;
(C)=Solely for assets of P;
D=Transfer of assets;
E=Recap;
F=Change in identity.

Front 30

Section 381

Back 30

"Carryovers in Certain Corporate Acquisitions"

In a 332 or a 361 ("A", "C", "D", "F", "G"), corporate attributes carryover to surviving entity.

Front 31

Section 382

Back 31

"Limitation on NOL Carryforwards and Certain BILs Following Ownership Change."

A change of control may trigger a limit on NOL use. The limit is equal to the value of the old loss cocmpany times the long-term tax exempt rate.

Front 32

Section 383

Back 32

"Special Limitations on Certain Excess Credits, etc."

Change of ownership may limit excess credits usuable by the surviving company.

Front 33

Section 384

Back 33

"Limitation on Use of Preacquisition Losses to Offset BIGs."

The income of a gain corporation during the recognition period, to the extent that income is attributable to recognized built-in gains of that gain corporation, may not be offset by preacquisition losses of any other corporation but may be offset by that gain corporation's own preacquisition losses.

Front 34

Section 385

Back 34

"Treatment of Certain Interests in Corporations as Stock or Indebtedness"

The Treasury is to issue regulations to help distinguish debt from stock. Look to (1) written, unconditional promise; (2) sub/pref. over corporate debt; (3) D:E ratio; (4) convertibility of debt to equity; (5) relationship between debtor/creditor.