Title 26 — Internal Revenue Code
Part I · Chapter 1 — Normal Taxes and Surtaxes
§ 305. Distributions of stock and stock rights
Statutory text
General rule
Except as otherwise provided in this section, gross income does not include the amount of any distribution of the stock of a corporation made by such corporation to its shareholders with respect to its stock.
Exceptions
Subsection (a) shall not apply to a distribution by a corporation of its stock, and the distribution shall be treated as a distribution of property to which section 301 applies—
Distributions in lieu of money
If the distribution is, at the election of any of the shareholders (whether exercised before or after the declaration thereof), payable either—
in its stock, or
in property.
Disproportionate distributions
If the distribution (or a series of distributions of which such distribution is one) has the result of—
the receipt of property by some shareholders, and
an increase in the proportionate interests of other shareholders in the assets or earnings and profits of the corporation.
Distributions of common and preferred stock
If the distribution (or a series of distributions of which such distribution is one) has the result of—
the receipt of preferred stock by some common shareholders, and
the receipt of common stock by other common shareholders.
Distributions on preferred stock
If the distribution is with respect to preferred stock, other than an increase in the conversion ratio of convertible preferred stock made solely to take account of a stock dividend or stock split with respect to the stock into which such convertible stock is convertible.
Distributions of convertible preferred stock
If the distribution is of convertible preferred stock, unless it is established to the satisfaction of the Secretary that such distribution will not have the result described in paragraph (2).
Certain transactions treated as distributions
For purposes of this section and section 301, the Secretary shall prescribe regulations under which a change in conversion ratio, a change in redemption price, a difference between redemption price and issue price, a redemption which is treated as a distribution to which section 301 applies, or any transaction (including a recapitalization) having a similar effect on the interest of any shareholder shall be treated as a distribution with respect to any shareholder whose proportionate interest in the earnings and profits or assets of the corporation is increased by such change, difference, redemption, or similar transaction. Regulations prescribed under the preceding sentence shall provide that—
where the issuer of stock is required to redeem the stock at a specified time or the holder of stock has the option to require the issuer to redeem the stock, a redemption premium resulting from such requirement or option shall be treated as reasonable only if the amount of such premium does not exceed the amount determined under the principles of section 1273(a)(3),
a redemption premium shall not fail to be treated as a distribution (or series of distributions) merely because the stock is callable, and
in any case in which a redemption premium is treated as a distribution (or series of distributions), such premium shall be taken into account under principles similar to the principles of section 1272(a).
Definitions
Rights to acquire stock
For purposes of this section, the term “stock” includes rights to acquire such stock.
Shareholders
For purposes of subsections (b) and (c), the term “shareholder” includes a holder of rights or of convertible securities.
Treatment of purchaser of stripped preferred stock
In general
If any person purchases after , any stripped preferred stock, then such person, while holding such stock, shall include in gross income amounts equal to the amounts which would have been so includible if such stripped preferred stock were a bond issued on the purchase date and having original issue discount equal to the excess, if any, of—
the redemption price for such stock, over
the price at which such person purchased such stock.
The preceding sentence shall also apply in the case of any person whose basis in such stock is determined by reference to the basis in the hands of such purchaser.
Basis adjustments
Appropriate adjustments to basis shall be made for amounts includible in gross income under paragraph (1).
Tax treatment of person stripping stock
If any person strips the rights to 1 or more dividends from any stock described in paragraph (5)(B) and after , disposes of such dividend rights, for purposes of paragraph (1), such person shall be treated as having purchased the stripped preferred stock on the date of such disposition for a purchase price equal to such person’s adjusted basis in such stripped preferred stock.
Amounts treated as ordinary income
Any amount included in gross income under paragraph (1) shall be treated as ordinary income.
Stripped preferred stock
For purposes of this subsection—
In general
The term “stripped preferred stock” means any stock described in subparagraph (B) if there has been a separation in ownership between such stock and any dividend on such stock which has not become payable.
Description of stock
Stock is described in this subsection if such stock—
is limited and preferred as to dividends and does not participate in corporate growth to any significant extent, and
has a fixed redemption price.
Purchase
For purposes of this subsection, the term “purchase” means—
any acquisition of stock, where
the basis of such stock is not determined in whole or in part by the reference to the adjusted basis of such stock in the hands of the person from whom acquired.
Cross reference
For treatment of stripped interests in certain accounts or entities holding preferred stock, see section 1286(e).
Cross references
For special rules—
Relating to the receipt of stock and stock rights in corporate organizations and reorganizations, see part III (sec. 351 and following).
In the case of a distribution which results in a gift, see section 2501 and following.
In the case of a distribution which has the effect of the payment of compensation, see section 61(a)(1).
Legislative history
Reconstructed from this section’s Code source credit and amendment notes, resolved against the local Statutes at Large. Editorial notes are evidence, not the law that made the change.
Aug. 16, 1954, ch. 736, 68A Stat. 90 · 68A Stat. 90
Enacted · 26 U.S.C. § 305
Aug. 16, 1954, ch. 736, 68A Stat. 90
Source evidence
Code source credit
Aug. 16, 1954, ch. 736, 68A Stat. 90Tax Reform Act of 1969
Pub. L. 91–172 title IV § 421(a) · 83 Stat. 487
Substituted · 26 U.S.C. § 305(a)
Pub. L. 91–172 substituted reference to this section for reference to subsec. (b), and omitted reference to rights to acquire its stock
Source evidence
Code amendment note
Subsec. (a). Pub. L. 91–172 substituted reference to this section for reference to subsec. (b), and omitted reference to rights to acquire its stock.Enacted provision · exact public law section
(a) In General.— Section 305 (relating to distributions of stock and stock rights) is amended to read as follows: “SEC. 305. DISTRIBUTIONS OF STOCK AND STOCK RIGHTS. “(a) General Rule.— Except as otherwise provided in this section gross income does not include the amount of any distribution of the stock of a corporation made by such corporation to its shareholders with respect to its stock. “(b) Exceptions.— Subsection (a) shall not apply to a distribution a corporation of its stock, and the distribution shall be treated as a distribution of property to which section 301 applies— “(1) Distributions in lieu of money.— If the distribution is, at the election of any of the shareholders (whether exercised before or after the declaration thereof), payable either— “(A) in its stock, or “(B) in property. “(2) Disproportionate distributions.— If the distribution (or a series of distributions of which such distribution is one) has the result of— “(A) the receipt of property by some shareholders, and “(B) an increase in the proportionate interests of other shareholders in the assets or earnings and profits of the corporation. “(3) Distributions of common and preferred stock.— If the distribution (or a series of distributions of which such distribution is one) has the result of— “(A) the receipt of preferred stock by some common shareholders, and “(B) the receipt of common stock by other common shareholders. “(4) Distributions on preferred stock.— If the distribution is with respect to preferred stock, other than an increase in the conversion ratio of convertible preferred stock made solely to take account of a stock dividend or stock split with respect to the stock into which such convertible stock is convertible. “(5) Distributions of convertible preferred stock.— If the distribution is of convertible preferred stock, unless it is established to the satisfaction of the Secretary or his delegate that such distribution will not have the result described in paragraph (2). “(c) Certain Transactions Treated as Distributions.— For 26 USC 301. purposes of this section and section 301, the Secretary or his delegate shall prescribe regulations under which a change in conversion ratio, a change in redemption price, a difference between redemption price and issue price, a redemption which is treated as a distribution to which section 301 applies, or any transaction (including a recapitalization) 68A Stat. 84. 26 USC 301. having a similar effect on the interest of any shareholder shall be treated as a distribution with respect to any shareholder whose proportionate interest in the earnings and profits or assets of the corporation is increased by such change, difference, redemption, or similar transaction. “(d) Definitions.— “(1) Eights to acquire stock.— For purposes of this section, the term ‘stock’ includes rights to acquire such stock. “(2) Shareholders.— For purposes of subsections (b) and (c), the term ‘shareholder’ includes a holder of rights or of convertible securities. “(e) Cross References.— “For special rules— “(1) Relating to the receipt of stock and stock rights in corporate organizations and reorganizations, see part III (sec. 351 and following). “(2) In the case of a distribution which results in a gift, see section 2501 and following. “(3) In the case of a distribution which has the effect of the payment of compensation, see section 61(a)(1).”Tax Reform Act of 1969
Pub. L. 91–172 title IV § 421(a) · 83 Stat. 487
Redesignated · 26 U.S.C. § 305(b)
Pub. L. 91–172 omitted reference to rights to acquire its stock, in text preceding par. (1), redesignated former par. (2) as par. (1)
Struck · 26 U.S.C. § 305(b)
Pub. L. 91–172 omitted reference to rights to acquire its stock, in text preceding par. (1), added pars. (2) to (5). Former par. (1), providing for the extent to which distribution of preference dividends were to be treated as distribution of property to which section 301 applied, was struck out
Source evidence
Code amendment note
Subsec. (b). Pub. L. 91–172 omitted reference to rights to acquire its stock, in text preceding par. (1), redesignated former par. (2) as par. (1) and added pars. (2) to (5). Former par. (1), providing for the extent to which distribution of preference dividends were to be treated as distribution of property to which section 301 applied, was struck out.Enacted provision · exact public law section
(a) In General.— Section 305 (relating to distributions of stock and stock rights) is amended to read as follows: “SEC. 305. DISTRIBUTIONS OF STOCK AND STOCK RIGHTS. “(a) General Rule.— Except as otherwise provided in this section gross income does not include the amount of any distribution of the stock of a corporation made by such corporation to its shareholders with respect to its stock. “(b) Exceptions.— Subsection (a) shall not apply to a distribution a corporation of its stock, and the distribution shall be treated as a distribution of property to which section 301 applies— “(1) Distributions in lieu of money.— If the distribution is, at the election of any of the shareholders (whether exercised before or after the declaration thereof), payable either— “(A) in its stock, or “(B) in property. “(2) Disproportionate distributions.— If the distribution (or a series of distributions of which such distribution is one) has the result of— “(A) the receipt of property by some shareholders, and “(B) an increase in the proportionate interests of other shareholders in the assets or earnings and profits of the corporation. “(3) Distributions of common and preferred stock.— If the distribution (or a series of distributions of which such distribution is one) has the result of— “(A) the receipt of preferred stock by some common shareholders, and “(B) the receipt of common stock by other common shareholders. “(4) Distributions on preferred stock.— If the distribution is with respect to preferred stock, other than an increase in the conversion ratio of convertible preferred stock made solely to take account of a stock dividend or stock split with respect to the stock into which such convertible stock is convertible. “(5) Distributions of convertible preferred stock.— If the distribution is of convertible preferred stock, unless it is established to the satisfaction of the Secretary or his delegate that such distribution will not have the result described in paragraph (2). “(c) Certain Transactions Treated as Distributions.— For 26 USC 301. purposes of this section and section 301, the Secretary or his delegate shall prescribe regulations under which a change in conversion ratio, a change in redemption price, a difference between redemption price and issue price, a redemption which is treated as a distribution to which section 301 applies, or any transaction (including a recapitalization) 68A Stat. 84. 26 USC 301. having a similar effect on the interest of any shareholder shall be treated as a distribution with respect to any shareholder whose proportionate interest in the earnings and profits or assets of the corporation is increased by such change, difference, redemption, or similar transaction. “(d) Definitions.— “(1) Eights to acquire stock.— For purposes of this section, the term ‘stock’ includes rights to acquire such stock. “(2) Shareholders.— For purposes of subsections (b) and (c), the term ‘shareholder’ includes a holder of rights or of convertible securities. “(e) Cross References.— “For special rules— “(1) Relating to the receipt of stock and stock rights in corporate organizations and reorganizations, see part III (sec. 351 and following). “(2) In the case of a distribution which results in a gift, see section 2501 and following. “(3) In the case of a distribution which has the effect of the payment of compensation, see section 61(a)(1).”Tax Reform Act of 1969
Pub. L. 91–172 title IV § 421(a) · 83 Stat. 487
Added · 26 U.S.C. § 305(c)(e)
Pub. L. 91–172 added subsecs. (c) and (d)
Redesignated · 26 U.S.C. § 305(c)(e)
Pub. L. 91–172 redesignated former subsec. (c) as (e)
Source evidence
Code amendment note
Subsecs. (c) to (e). Pub. L. 91–172 added subsecs. (c) and (d) and redesignated former subsec. (c) as (e).Enacted provision · exact public law section
(a) In General.— Section 305 (relating to distributions of stock and stock rights) is amended to read as follows: “SEC. 305. DISTRIBUTIONS OF STOCK AND STOCK RIGHTS. “(a) General Rule.— Except as otherwise provided in this section gross income does not include the amount of any distribution of the stock of a corporation made by such corporation to its shareholders with respect to its stock. “(b) Exceptions.— Subsection (a) shall not apply to a distribution a corporation of its stock, and the distribution shall be treated as a distribution of property to which section 301 applies— “(1) Distributions in lieu of money.— If the distribution is, at the election of any of the shareholders (whether exercised before or after the declaration thereof), payable either— “(A) in its stock, or “(B) in property. “(2) Disproportionate distributions.— If the distribution (or a series of distributions of which such distribution is one) has the result of— “(A) the receipt of property by some shareholders, and “(B) an increase in the proportionate interests of other shareholders in the assets or earnings and profits of the corporation. “(3) Distributions of common and preferred stock.— If the distribution (or a series of distributions of which such distribution is one) has the result of— “(A) the receipt of preferred stock by some common shareholders, and “(B) the receipt of common stock by other common shareholders. “(4) Distributions on preferred stock.— If the distribution is with respect to preferred stock, other than an increase in the conversion ratio of convertible preferred stock made solely to take account of a stock dividend or stock split with respect to the stock into which such convertible stock is convertible. “(5) Distributions of convertible preferred stock.— If the distribution is of convertible preferred stock, unless it is established to the satisfaction of the Secretary or his delegate that such distribution will not have the result described in paragraph (2). “(c) Certain Transactions Treated as Distributions.— For 26 USC 301. purposes of this section and section 301, the Secretary or his delegate shall prescribe regulations under which a change in conversion ratio, a change in redemption price, a difference between redemption price and issue price, a redemption which is treated as a distribution to which section 301 applies, or any transaction (including a recapitalization) 68A Stat. 84. 26 USC 301. having a similar effect on the interest of any shareholder shall be treated as a distribution with respect to any shareholder whose proportionate interest in the earnings and profits or assets of the corporation is increased by such change, difference, redemption, or similar transaction. “(d) Definitions.— “(1) Eights to acquire stock.— For purposes of this section, the term ‘stock’ includes rights to acquire such stock. “(2) Shareholders.— For purposes of subsections (b) and (c), the term ‘shareholder’ includes a holder of rights or of convertible securities. “(e) Cross References.— “For special rules— “(1) Relating to the receipt of stock and stock rights in corporate organizations and reorganizations, see part III (sec. 351 and following). “(2) In the case of a distribution which results in a gift, see section 2501 and following. “(3) In the case of a distribution which has the effect of the payment of compensation, see section 61(a)(1).”Pub. L. 94–455 title XIX § 1906(b)(13)(A) · 90 Stat. 1520
Struck · 26 U.S.C. § 305(b)(5); 26 U.S.C. § 305(b)(c)
Pub. L. 94–455 struck out “or his delegate” after “Secretary”
Source evidence
Code amendment note
Subsecs. (b)(5), (c). Pub. L. 94–455 struck out “or his delegate” after “Secretary”.Enacted provision · exact public law section
(A) The Internal Revenue Code of 1954, as amended by this Act, is amended by striking out “Secretary or his delegate” each place it appears and inserting in lieu thereof “Secretary”.Economic Recovery Tax Act of 1981
Pub. L. 97–34 § 321(b) · 95 Stat. 175
Inserted · 26 U.S.C. § 305(d)(1)
Pub. L. 97–34, § 321(b), inserted “(other than subsection (e))” after “this section”
Source evidence
Code amendment note
Subsec. (d)(1). Pub. L. 97–34, § 321(b), inserted “(other than subsection (e))” after “this section”.Enacted provision · exact public law section
(b) Amendment of Section 305(d).— Paragraph (1) of section 305(d) 26 USC 305. (defining stock) is amended by striking out “this section” and inserting in lieu thereof “this section (other than subsection (e))”.Economic Recovery Tax Act of 1981
Pub. L. 97–34 § 321(a) · 95 Stat. 175
Added · 26 U.S.C. § 305(e); 26 U.S.C. § 305(f)
Pub. L. 97–34, § 321(a), added subsec. (e)
Redesignated · 26 U.S.C. § 305(e); 26 U.S.C. § 305(f)
Pub. L. 97–34, § 321(a), redesignated former subsec. (e) as (f)
Source evidence
Code amendment note
Subsecs. (e), (f). Pub. L. 97–34, § 321(a), added subsec. (e) and redesignated former subsec. (e) as (f).Enacted provision · exact public law section
(a) Amendment of Section 305.— Section 305 (relating to distributions 26 USC 305. of stock and stock rights) is amended by redesignating subsection (e) as subsection (f) and by inserting after subsection (d) the following new subsection: “(e) Dividend Reinvestment in Stock of Public Utilities.— “(1) In general.— Subsection (b) shall not apply to any qualified reinvested dividend. “(2) Qualified reinvested dividend defined.— For purposes of this subsection, the term ‘qualified reinvested dividend’ means— “(A) a distribution by a qualified public utility of shares of its qualified common stock to an individual with respect to the common or preferred stock of such corporation pursuant to a plan under which shareholders may elect to receive dividends in the form of stock instead of property, but “(B) only if the shareholder elects to have this subsection apply to such shares. “(3) Qualified public utility defined.— “(A) In general.— For purposes of this subsection, the term ‘qualified public utility’ means, for any taxable year of the corporation, a domestic corporation which, for the 10-year period ending on the day before the beginning of the taxable year, acquired public utility recovery property having a cost equal to at least 60 percent of the aggregate cost of all tangible property described in section 1245(a)(3) Ante, p. 218. (other than subparagraphs (C) and (D) thereof) acquired by the corporation during such period. “(B) Special rules.— For purposes of subparagraph (A)— “(i) all members of an affiliated group shall be treated as one corporation, “(ii) a successor corporation shall take into account the acquisitions of its predecessor, and “(iii) a new corporation to which clause (ii) does not apply shall substitute its period of existence for the 10-year period set forth in subparagraph (A). “(C) Definitions.— For purposes of this paragraph— “(i) Affiliated group.— The term ‘affiliated group’ has the meaning given to such term by subsection (a) of section 1504 (determined without regard to subsection (b) of section 1504). “(ii) Public utility recovery property.— The term ‘public utility recovery property’ means public utility property (within the meaning of section 167(l)(3)(A)) which is recovery property which is 10-year property or 15-year public utility property (within the meaning of section 168), except that any requirement that the Ante, p. 204. property be placed in service after December 31, 1980, shall not apply. “(4) Qualified common stock defined.— “(A) In general.— For purposes of this subsection, the term ‘qualified common stock’ means authorized but unissued common stock of the corporation— “(i) which has been designated by the board of directors of the corporation as issued for purposes of this subsection, but “(ii) only if the number of shares to be issued to a shareholder was determined by reference to a value which is not less than 95 percent and not more than 105 percent of the stock’s fair market value during the period immediately before the distribution (determined under regulations prescribed by the Secretary). “(B) Certain purchases by corporation of its own stock.— Except as provided in subparagraph (D), if a corporation has purchased or purchases its common stock within a 2-year period beginning 1 year before the date of the distribution and ending 1 year after such date, such distribution shall be treated as not being a qualified reinvested dividend. “(C) Members of affiliated group.— For purposes of subparagraph (B), the purchase by any corporation which is a member of the same affiliated group (as defined in paragraph (3)(C)(i)) as the distributing corporation of common stock in any corporation which is a member of such group from any person (other than a member of such group) shall be treated as a purchase by the distributing corporation of its common stock. “(D) Waiver of subparagraph (b) where there is business purpose.— Under regulations prescribed by the Secretary, subparagraph (B) shall not apply where the distributing corporation establishes that there was a business purpose for the purchase of the stock and such purchase is not inconsistent with the purposes of this subsection. “(5) Share includes fractional share.— For purposes of this subsection, the term ‘share’ includes a fractional share. “(6) Limitation.— “(A) In general.— In the case of any individual, the aggregate amount of distributions to which this subsection applies for the taxable year shall not exceed $750 ($1,500 in the case of a joint return). “(B) Application of ceiling.— If, but for this subparagraph, a share of stock would, by reason of subparagraph (A), be treated as partly within this subsection and partly outside this subsection, such share shall be treated as outside this subsection. “(7) Basis and holding period.— In the case of stock received as a qualified reinvested dividend— “(A) notwithstanding section 307, the basis shall be zero, and “(B) the holding period shall begin on the date the dividend would (but for this subsection) be includible in income. “(8) Election.— An election under this subsection with respect to any share shall be made on the shareholder’s return for the taxable year in which the dividend would (but for this subsection) be includible in income. Any such election, once made, shall be revocable only with the consent of the Secretary. “(9) Dispositions within 1 year of distribution.— Under regulations prescribed by the Secretary— “(A) Disposition of other common stock.— If— “(i) a shareholder receives any qualified reinvested dividend from a corporation, and “(ii) during the period which begins on the record date for the qualified reinvested dividend and ends 1 year after the date of the distribution of such dividend, the shareholder disposes of any common stock of such corporation, the shareholder shall be treated as having disposed of the stock received as a qualified reinvested dividend (to the extent there remains such stock to which this paragraph has not applied). “(B) Ordinary income treatment.— If any stock received as a qualified reinvested dividend is disposed of within 1 year after the date such stock is distributed, such disposition shall be treated as a disposition of property which is not a capital asset. “(10) No reduction in earnings and profits for distribution of qualified common stock.— The earnings and profits of any corporation shall not be reduced by reason of the distribution of any qualified common stock of such corporation pursuant to a plan under which shareholders may elect to receive dividends in the form of stock instead of property. “(11) Certain individuals ineligible.— “(A) In general.— This subsection shall not apply to any individual who is— “(i) a trust or estate, or “(ii) a nonresident alien individual. “(B) 5 percent shareholders ineligible.— Any distribution by a corporation to a 5 percent shareholder in such corporation shall not be treated as a qualified reinvested dividend. “(C) 5 percent shareholder defined.— For purposes of subparagraph (B), the term ‘5 percent shareholder’ means any individual who, immediately before the distribution, owns (directly or through the application of section 318)— “(i) stock possessing more than 5 percent of the total combined voting power of the distributing corporation, or “(ii) more than 5 percent of the total value of all classes of stock of the distributing corporation. “(12) Termination.— This subsection shall not apply to distributions after December 31, 1985.”Pub. L. 97–448 § 103(f)(1) · 96 Stat. 2365
Substituted · 26 U.S.C. § 305(e)(3)(A)
Pub. L. 97–448, § 103(f)(1), substituted “placed in service qualified long-life public utility property having a cost equal to at least 60 percent of the aggregate cost of all tangible property described in subparagraph (A) or (B) of section 1245(a)(3) placed in service by the corporation during such period” for “acquired public utility recovery property having a cost equal to at least 60 percent of the aggregate cost of all tangible property described in section 1245(a)(3) (other than subparagraphs (C) and (D) thereof) acquired by the corporation during such period”
Source evidence
Code amendment note
Subsec. (e)(3)(A). Pub. L. 97–448, § 103(f)(1), substituted “placed in service qualified long-life public utility property having a cost equal to at least 60 percent of the aggregate cost of all tangible property described in subparagraph (A) or (B) of section 1245(a)(3) placed in service by the corporation during such period” for “acquired public utility recovery property having a cost equal to at least 60 percent of the aggregate cost of all tangible property described in section 1245(a)(3) (other than subparagraphs (C) and (D) thereof) acquired by the corporation during such period”.Enacted provision · exact public law section
(1) Subparagraph (A) of section 305(e)(3) (defining qualified public utility) is amended to read as follows: “(A) In general.— For purposes of this subsection, the term ‘qualified public utility’ means, for any taxable year of the corporation, a domestic corporation which, for the 10-year period ending on the day before the beginning of the taxable year, placed in service qualified long-life public utility property having a cost equal to at least 60 percent of the aggregate cost of all tangible property described in subparagraph (A) or (B) of section 1245(a)(3) placed in service by the corporation during such period.”Pub. L. 97–448 § 103(f)(2) · 96 Stat. 2365
Substituted · 26 U.S.C. § 305(e)(3)(C)(ii)
Pub. L. 97–448, § 103(f)(2), substituted definition of “qualified long-life public utility property” for definition of “public utility recovery property” which had been defined as public utility property (within the meaning of section 167(l)(3)(A)) which was recovery property which was 10-year property or 15-year public utility property (within the meaning of section 168), except that any requirement that the property be placed in service after December 31, 1980, did not apply
Source evidence
Code amendment note
Subsec. (e)(3)(C)(ii). Pub. L. 97–448, § 103(f)(2), substituted definition of “qualified long-life public utility property” for definition of “public utility recovery property” which had been defined as public utility property (within the meaning of section 167(l)(3)(A)) which was recovery property which was 10-year property or 15-year public utility property (within the meaning of section 168), except that any requirement that the property be placed in service after December 31, 1980, did not apply.Enacted provision · exact public law section
(2) Clause (ii) of section 305(e)(3)(C) is amended to read as follows: “(ii) Qualified long-life public utility property.— The term ‘qualified long-life public utility property’ means any tangible property which— “(I) is described in subparagraph (A) or (B) of section 1245(a)(3), “(II) has a present class life (as defined in section 168(g)(2)) of more than 18 years, and “(III) is public utility property (within the meaning of section 167(1)(3)(A)).”Revenue Reconciliation Act of 1990
Pub. L. 101–508 § 11322(a) · 104 Stat. 1388
Inserted · 26 U.S.C. § 305(c)
Pub. L. 101–508, § 11322(a), inserted sentence at end specifying the contents of regulations
Source evidence
Code amendment note
Subsec. (c). Pub. L. 101–508, § 11322(a), inserted sentence at end specifying the contents of regulations.Enacted provision · exact public law section
(a) General Rule.— Subsection (c) of section 305 (relating to certain transactions treated as distributions) is amended by adding at the end thereof the following new sentence: “Regulations prescribed under the preceding sentence shall provide that— “(1) where the issuer of stock is required to redeem the stock at a specified time or the holder of stock has the option to require the issuer to redeem the stock, a redemption premium resulting from such requirement or option shall be treated as reasonable only if the amount of such premium does not exceed the amount determined under the principles of section 1273(a)(3), “(2) a redemption premium shall not fail to be treated as a distribution (or series of distributions) merely because the stock is callable, and “(3) in any case in which a redemption premium is treated as a distribution (or series of distributions), such premium shall be taken into account under principles similar to the principles of section 1272(a).”Revenue Reconciliation Act of 1990
Pub. L. 101–508 § 11801(c)(7)(A) · 104 Stat. 1388
Struck · 26 U.S.C. § 305(d)(1)
Pub. L. 101–508, § 11801(c)(7)(A), struck out “(other than subsection (e))” after “this section”
Source evidence
Code amendment note
Subsec. (d)(1). Pub. L. 101–508, § 11801(c)(7)(A), struck out “(other than subsection (e))” after “this section”.Enacted provision · exact public law section
(A) Paragraph (1) of section 305(d) is amended by striking “(other than subsection (e))”.Revenue Reconciliation Act of 1990
Pub. L. 101–508 § 11801(a)(17) · 104 Stat. 1388
Redesignated · 26 U.S.C. § 305(e); 26 U.S.C. § 305(f)
Pub. L. 101–508, § 11801(a)(17), (c)(7)(B), redesignated subsec. (f) as (e)
Struck · 26 U.S.C. § 305(e); 26 U.S.C. § 305(f)
Pub. L. 101–508, § 11801(a)(17), (c)(7)(B), struck out former subsec. (e) relating to dividend reinvestment in stock of public utilities
Source evidence
Code amendment note
Subsecs. (e), (f). Pub. L. 101–508, § 11801(a)(17), (c)(7)(B), redesignated subsec. (f) as (e) and struck out former subsec. (e) relating to dividend reinvestment in stock of public utilities.Enacted provision · exact public law section
(17) Subsection (e) of section 305 (relating to dividend reinvestment in stock of public utilities).Revenue Reconciliation Act of 1993
Pub. L. 103–66 title XIII § 13206(c)(1) · 107 Stat. 312
Added · 26 U.S.C. § 305(e); 26 U.S.C. § 305(f)
Pub. L. 103–66 added subsec. (e)
Redesignated · 26 U.S.C. § 305(e); 26 U.S.C. § 305(f)
Pub. L. 103–66 redesignated former subsec. (e) as (f)
Source evidence
Code amendment note
Subsecs. (e), (f). Pub. L. 103–66 added subsec. (e) and redesignated former subsec. (e) as (f).Enacted provision · exact public law section
(1) 26 USC 305. In general.— Section 305 is amended by redesignating subsection (e) as subsection (f) and by inserting after subsection (d) the following new subsection: “(e) Treatment of Purchaser of Stripped Preferred Stock.— “(1) In general.— If any person purchases after April 30, 1993, any stripped preferred stock, then such person, while holding such stock, shall include in gross income amounts equal to the amounts which would have been so includible if such stripped preferred stock were a bond issued on the purchase date and having original issue discount equal to the excess, if any, of— “(A) the redemption price for such stock, over “(B) the price at which such person purchased such stock. The preceding sentence shall also apply in the case of any person whose basis in such stock is determined by reference to the basis in the hands of such purchaser. “(2) Basis adjustments.— Appropriate adjustments to basis shall be made for amounts includible in gross income under paragraph (1). “(3) Tax treatment of person stripping stock.— If any person strips the rights to 1 or more dividends from any stock described in paragraph (5)(B) and after April 30, 1993, disposes of such dividend rights, for purposes of paragraph (1), such person shall be treated as having purchased the stripped preferred stock on the date of such disposition for a purchase price equal to such person’s adjusted basis in such stripped preferred stock. “(4) Amounts treated as ordinary income.— Any amount included in gross income under paragraph (1) shall be treated as ordinary income. “(5) Stripped preferred stock.— For purposes of this subsection— “(A) In general.— The term ‘stripped preferred stock’ means any stock described in subparagraph (B) if there has been a separation in ownership between such stock and any dividend on such stock which has not become payable. “(B) Description of stock.— Stock is described in this subsection if such stock— “(i) is limited and preferred as to dividends and does not participate in corporate growth to any significant extent, and “(ii) has a fixed redemption price. “(6) Purchase.— For purposes of this subsection, the term ‘purchase’ means— “(A) any acquisition of stock, where “(B) the basis of such stock is not determined in whole or in part by the reference to the adjusted basis of such stock in the hands of the person from whom acquired.”Pub. L. 108–357 title VIII § 831(b) · 118 Stat. 1418
Added · 26 U.S.C. § 305(e)(7)
Pub. L. 108–357 added par. (7)
Source evidence
Code amendment note
Subsec. (e)(7). Pub. L. 108–357 added par. (7).Enacted provision · exact public law section
(b) Cross Reference.— Subsection (e) of section 305 is amended by adding at the end the following new paragraph: “(7) Cross reference.— “For treatment of stripped interests in certain accounts or entities holding preferred stock, see section 1286(f).” .Energy and Water Development and Related Agencies Appropriations Act, 2018
Pub. L. 115–141 div. U title IV § 401(c)(2)(D) · 132 Stat. 348
Substituted · 26 U.S.C. § 305(e)(7)
Pub. L. 115–141 substituted “1286(e)” for “1286(f)”
Source evidence
Code amendment note
Subsec. (e)(7). Pub. L. 115–141 substituted “1286(e)” for “1286(f)”.Enacted provision · exact public law section
Sec. 401. The Nuclear Regulatory Commission shall comply with the July 5, 2011, version of Chapter VI of its Internal Commission Procedures when responding to Congressional requests for information.Effective date note
Pub. L. 115–141, div. U, title IV, § 401(c)(2)(E), Mar. 23, 2018, 132 Stat. 1206, provided that: “The amendments made by this paragraph [amending this section and section 1286 of this title] shall apply to bonds purchased on or after July 2, 1982.”
19 of 20 references resolved to an enrolled provision · 1 partial
Editorial Notes
Amendments1969–2018 · 8 rounds
2018
Subsec. (e)(7). Pub. L. 115–141 substituted “1286(e)” for “1286(f)”.
2004
Subsec. (e)(7). Pub. L. 108–357 added par. (7).
1993
Subsecs. (e), (f). Pub. L. 103–66 added subsec. (e) and redesignated former subsec. (e) as (f).
1990
Subsec. (c). Pub. L. 101–508, § 11322(a), inserted sentence at end specifying the contents of regulations.
Subsec. (d)(1). Pub. L. 101–508, § 11801(c)(7)(A), struck out “(other than subsection (e))” after “this section”.
Subsecs. (e), (f). Pub. L. 101–508, § 11801(a)(17), (c)(7)(B), redesignated subsec. (f) as (e) and struck out former subsec. (e) relating to dividend reinvestment in stock of public utilities.
1983
Subsec. (e)(3)(A). Pub. L. 97–448, § 103(f)(1), substituted “placed in service qualified long-life public utility property having a cost equal to at least 60 percent of the aggregate cost of all tangible property described in subparagraph (A) or (B) of section 1245(a)(3) placed in service by the corporation during such period” for “acquired public utility recovery property having a cost equal to at least 60 percent of the aggregate cost of all tangible property described in section 1245(a)(3) (other than subparagraphs (C) and (D) thereof) acquired by the corporation during such period”.
Subsec. (e)(3)(C)(ii). Pub. L. 97–448, § 103(f)(2), substituted definition of “qualified long-life public utility property” for definition of “public utility recovery property” which had been defined as public utility property (within the meaning of section 167(l)(3)(A)) which was recovery property which was 10-year property or 15-year public utility property (within the meaning of section 168), except that any requirement that the property be placed in service after , did not apply.
1981
Subsec. (d)(1). Pub. L. 97–34, § 321(b), inserted “(other than subsection (e))” after “this section”.
Subsecs. (e), (f). Pub. L. 97–34, § 321(a), added subsec. (e) and redesignated former subsec. (e) as (f).
1976
Subsecs. (b)(5), (c). Pub. L. 94–455 struck out “or his delegate” after “Secretary”.
1969
Subsec. (a). Pub. L. 91–172 substituted reference to this section for reference to subsec. (b), and omitted reference to rights to acquire its stock.
Subsec. (b). Pub. L. 91–172 omitted reference to rights to acquire its stock, in text preceding par. (1), redesignated former par. (2) as par. (1) and added pars. (2) to (5). Former par. (1), providing for the extent to which distribution of preference dividends were to be treated as distribution of property to which section 301 applied, was struck out.
Subsecs. (c) to (e). Pub. L. 91–172 added subsecs. (c) and (d) and redesignated former subsec. (c) as (e).
Statutory Notes and Related Subsidiaries
Effective Date of 2018 Amendment
Pub. L. 115–141, div. U, title IV, § 401(c)(2)(E), , 132 Stat. 1206, provided that: “The amendments made by this paragraph [amending this section and section 1286 of this title] shall apply to bonds purchased on or after .”
Effective Date of 2004 Amendment
Pub. L. 108–357, title VIII, § 831(c), , 118 Stat. 1587, provided that: “The amendments made by this section [amending this section and section 1286 of this title] shall apply to purchases and dispositions after the date of the enactment of this Act [].”
Effective Date of 1993 Amendment
Amendment by Pub. L. 103–66 effective , see section 13206(c)(3) of Pub. L. 103–66 set out as a note under section 167 of this title.
Effective Date of 1990 Amendment
Pub. L. 101–508, title XI, § 11322(b), , 104 Stat. 1388–464, provided that:
“(1) In general.—
Except as provided in paragraph (2), the amendment made by subsection (a) [amending this section] shall apply to stock issued after .
“(2) Exception.—
The amendment made by subsection (a) shall not apply to any stock issued after , if—
“(A) such stock is issued pursuant to a written binding contract in effect on , and at all times thereafter before such issuance,
“(B) such stock is issued pursuant to a registration or offering statement filed on or before , with a Federal or State agency regulating the offering or sale of securities and such stock is issued before the date 90 days after the date of such filing, or
“(C) such stock is issued pursuant to a plan filed on or before , in a title 11 or similar case (as defined in section 368(a)(3)(A) of the Internal Revenue Code of 1986).”
Effective Date of 1983 Amendment
Amendment by Pub. L. 97–448 effective, except as otherwise provided, as if it had been included in the provision of the Economic Recovery Tax Act of 1981, Pub. L. 97–34, to which such amendment relates, see section 109 of Pub. L. 97–448, set out as a note under section 1 of this title.
Effective Date of 1981 Amendment
Pub. L. 97–34, title III, § 321(c), , 95 Stat. 289, provided that: “The amendments made by this section [amending this section] shall apply to distributions after , in taxable years ending after such date.”
Effective Date of 1969 Amendment
Pub. L. 91–172, title IV, § 421(b), , 83 Stat. 615, as amended by Pub. L. 99–514, § 2, , 100 Stat. 2095, provided that:
“(1) Except as otherwise provided in this subsection, the amendment made by subsection (a) [amending this section] shall apply with respect to distributions (or deemed distributions) made after , in taxable years ending after such date.
“(2) (A) Section 305(b)(2) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as added by subsection (a)) shall not apply to a distribution (or deemed distribution) of stock made before , with respect to stock (i) outstanding on , (ii) issued pursuant to a contract binding on , on the distributing corporation, (iii) which is additional stock of that class of stock which (as of ) had the largest fair market value of all classes of stock of the corporation (taking into account only stock outstanding on , or issued pursuant to a contract binding on ), (iv) described in subparagraph (C)(iii), or (v) issued in a prior distribution described in clause (i), (ii), (iii), or (iv).
“(B) Subparagraph (A) shall apply only if—
“(i) the stock as to which there is a receipt of property was outstanding on (or was issued pursuant to a contract binding on , on the distributing corporation), and
“(ii) if such stock and any stock described in subparagraph (A)(i) were also outstanding on , a distribution of property was made on or before , with respect to such stock, and a distribution of stock was made on or before , with respect to such stock described in subparagraph (A)(i).
“(C) Subparagraph (A) shall cease to apply when at any time after , the distributing corporation issues any of its stock (other than in a distribution of stock with respect to stock of the same class) which is not—
“(i) nonconvertible preferred stock.
“(ii) additional stock of that class of stock which meets the requirements of subparagraph (A)(iii), or
“(iii) preferred stock which is convertible into stock which meets the requirements of subparagraph (A)(iii) at a fixed conversion ratio which takes account of all stock dividends and stock splits with respect to the stock into which such convertible stock is convertible.
“(D) For purposes of this paragraph, the term ‘stock’ includes rights to acquire such stock.
“(3) In cases to which Treasury Decision 6990 (promulgated ) would not have applied, in applying paragraphs (1) and (2) , shall be substituted for .
“(4) Section 305(b)(4) of the Internal Revenue Code of 1986 (as added by subsection (a)) shall not apply to any distribution (or deemed distribution) with respect to preferred stock (including any increase in the conversion ratio of convertible stock) made before , pursuant to the terms relating to the issuance of such stock which were in effect on .
“(5) With respect to distributions made or considered as made after , in taxable years ending after such date, to the extent that the amendment made by subsection (a) [amending this section] does not apply by reason of paragraph (2), (3), or (4) of this subsection, section 305 of the Internal Revenue Code of 1986 (as in effect before the amendment made by subsection (a)) shall continue to apply.”
Savings Provision
For provisions that nothing in amendment by section 11801(a)(17), (c)(7) of Pub. L. 101–508 be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to , for purposes of determining liability for tax for periods ending after , see section 11821(b) of Pub. L. 101–508, set out as a note under section 45K of this title.
Credits
1954–2018 · 9 acts
- 1954Aug. 16, 1954, ch. 736, 68A Stat. 90
- 1969Pub. L. 91–172, title IV, § 421(a), , 83 Stat. 614
- 1976Pub. L. 94–455, title XIX, § 1906(b)(13)(A), , 90 Stat. 1834
- 1981Pub. L. 97–34, title III, § 321(a), (b), , 95 Stat. 287, 289
- 1983Pub. L. 97–448, title I, § 103(f), , 96 Stat. 2378
- 1990Pub. L. 101–508, title XI, §§ 11322(a), 11801(a)(17), (c)(7), , 104 Stat. 1388–463, 1388–521, 1388–524
- 1993Pub. L. 103–66, title XIII, § 13206(c)(1), , 107 Stat. 465
- 2004Pub. L. 108–357, title VIII, § 831(b), , 118 Stat. 1587
- 2018Pub. L. 115–141, div. U, title IV, § 401(c)(2)(D), , 132 Stat. 1206.
Show as published
(Aug. 16, 1954, ch. 736, 68A Stat. 90; Pub. L. 91–172, title IV, § 421(a), , 83 Stat. 614; Pub. L. 94–455, title XIX, § 1906(b)(13)(A), , 90 Stat. 1834; Pub. L. 97–34, title III, § 321(a), (b), , 95 Stat. 287, 289; Pub. L. 97–448, title I, § 103(f), , 96 Stat. 2378; Pub. L. 101–508, title XI, §§ 11322(a), 11801(a)(17), (c)(7), , 104 Stat. 1388–463, 1388–521, 1388–524; Pub. L. 103–66, title XIII, § 13206(c)(1), , 107 Stat. 465; Pub. L. 108–357, title VIII, § 831(b), , 118 Stat. 1587; Pub. L. 115–141, div. U, title IV, § 401(c)(2)(D), , 132 Stat. 1206.)