§ 337. Nonrecognition for property distributed to parent in complete liquidation of subsidiary

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.

1. 1986

   Tax Reform Act of 1986

   Pub. L. 99–514 title VI § 631(a) · 100 Stat. 2085

   Enacted · 26 U.S.C. § 337

   Added Pub. L. 99–514, title VI, § 631(a), Oct. 22, 1986, 100 Stat. 2271

   Source evidence

   Code source credit
   Added Pub. L. 99–514, title VI, § 631(a), Oct. 22, 1986, 100 Stat. 2271

   Enacted provision · exact public law section
   (a) General Rule.— Subpart B of part II of subchapter C (relating to effects on corporation) is amended by striking out sections 336 and 337 and inserting in lieu thereof the following: “SEC. 336. GAIN OR LOSS RECOGNIZED ON PROPERTY DISTRIBUTED INCOMPLETE LIQUIDATION. “(a) General Rule.— Except as otherwise provided in this section or section 337, gain or loss shall be recognized to a liquidating corporation on the distribution of property in complete liquidation as if such property were sold to the distributee at its fair market value. “(b) Treatment of Liabilities in Excess of Basis.— If any property distributed in the liquidation is subject to a liability or the shareholder assumes a liability of the liquidating corporation in connection with the distribution, for purposes of subsection (a) and section 337, the fair market value of such property shall be treated as not less than the amount of such liability. “(c) Exception for Certain Liquidations to Which Part III Applies.— This section shall not apply with respect to any distribution of property to the extent there is nonrecognition of gain or loss with respect to such property to the recipient under part III. “(d) Limitations on Recognition of Loss.— “(1) No loss recognized in certain distributions to related persons.— “(A) In general.— No loss shall be recognized to a liquidating corporation on the distribution of any property to a related person (within the meaning of section 267) if— “(i) such distribution is not pro rata, or “(ii) such property is disqualified property. “(B) Disqualified property.— For purposes of subparagraph (A), the term ‘disqualified property’ means any prop-erty which is acquired by the liquidating corporation in a transaction to which section 351 applied, or as a contribution to capital, during the 5-year period ending on the date of the distribution. Such term includes any property if the adjusted basis of such property is determined (in whole or in part) by reference to the adjusted basis of property described in the preceding sentence. “(2) Special rule for certain property acquired in certain carryover basis transactions.— “(A) In general.— For purposes of determining the amount of loss recognized by any liquidating corporation on any sale, exchange, or distribution of property described in subparagraph (B), the adjusted basis of such property shall be reduced (but not below zero) by the excess (if any) of— “(i) the adjusted basis of such property immediately after its acquisition by such corporation, over “(ii) the fair market value of such property as of such time. “(B) Description of property.— “(i) In general.— For purposes of subparagraph (A), property is described in this subparagraph if— “(I) such property is acquired by the liquidating corporation in a transaction to which section 351 applied or as a contribution to capital, and “(II) the acquisition of such property by the liquidating corporation was part of a plan a principal purpose of which was to recognize loss by the liquidating corporation with respect to such property in connection with the liquidation. Other property shall be treated as so described if the adjusted basis of such other property is determined (in whole or in part) by reference to the adjusted basis of property described in the preceding sentence. “(ii) Certain acquisitions treated as part of plan.— For purposes of clause (i), any property described in clause (i)(I) acquired by the liquidating corporation during the 2-year period ending on the date of the adoption of the plan of complete liquidation shall, except as provided in regulations, be treated as part of a plan described in clause (i)(II). “(C) Recapture in lieu of disallowance.— The Secretary may prescribe regulations under which, in lieu of disallowing a loss under subparagraph (A) for a prior taxable year, the gross income of the liquidating corporation for the taxable year in which the plan of complete liquidation is adopted shall be increased by the amount of the disallowed loss. “(3) Special rule in case of liquidation to which section 332 applies.— In the case of any liquidation to which section 332 applies, no loss shall be recognized to the liquidating corporation on any distribution in such liquidation. “(e) Certain Stock Sales and Distributions May Be Treated As Asset Transfers.— Under regulations prescribed by the Secretary, if— “(1) a corporation owns stock in another corporation meeting the requirements of section 1504(a)(2), and “(2) such corporation sells, exchanges, or distributes all of such stock, such corporation may elect to treat such sale, exchange, or distribution as a disposition of all of the assets of such other corporation, and no gain or loss shall be recognized on the sale, exchange, or distribution of such stock. “SEC. 337. NONRECOGNITION FOR PROPERTY DISTRIBUTED TO PARENT IN COMPLETE LIQUIDATION OF SUBSIDIARY. “(a) In General.— No gain or loss shall be recognized to the liquidating corporation on the distribution to the 80-percent distributee of any property in a complete liquidation to which section 332 applies. “(b) Treatment of Indebtedness of Subsidiary, Etc.— “(1) Indebtedness of subsidiary to parent.— If— “(A) a corporation is liquidated in a liquidation to which section 332 applies, and “(B) on the date of the adoption of the plan of liquidation, such corporation was indebted to the 80-percent distributee, for purposes of this section and section 336, any transfer of property to the 80-percent distributee in satisfaction of such indebtedness shall be treated as a distribution to such distributee in such liquidation. “(2) Treatment of tax-exempt distributee.— “(A) In general.— Except as provided in subparagraph (B), paragraph (1) and subsection (a) shall not apply where the 80-percent distributee is an organization (other than a cooperative described in section 521) which is exempt from the tax imposed by this chapter. “(B) Exception where property will be used in unrelated business.— “(i) In general.— Subparagraph (A) shall not apply to any distribution of property to an organization described in section 511(a)(2) or 511(b)(2) if, immediately after such distribution, such organization uses such property in an unrelated trade or business (as defined in section 513). “(ii) Later disposition or change in use.— If any property to which clause (i) applied is disposed of by the organization acquiring such property, notwithstanding any other provision of law, any gain (not in excess of the amount not recognized by reason of clause (i)) shall be included in such organization’s unrelated business taxable income. For purposes of the preceding sentence, if such property ceases to be used in an unrelated trade or business of such organization, such organization shall be treated as having disposed of such property on the date of such cessation. “(c) 80-Percent Distributee.— For purposes of this section, the term ‘80-percent distributee’ means only the corporation which meets the 80-percent stock ownership requirements specified in section 332(b). “(d) Regulations.— The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of the amendments made to this subpart by the Tax Reform Act of 1986, including— “(1) regulations to ensure that such purposes may not be circumvented through the use of any provision of law or regulations (including the consolidated return regulations and part III of this subchapter), and “(2) regulations providing for appropriate coordination of the provisions of this section with the provisions of this title relating to taxation of foreign corporations and their shareholders.”

   Effective date note
   Pub. L. 100–647, title I, § 1006(e)(5)(B), Nov. 10, 1988, 102 Stat. 3401, provided that: “The amendment made by subparagraph (A)(ii) [amending this section] shall not apply to any reorganization if before June 10, 1987— 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.

2. 1987

   Pub. L. 100–203 title X § 10223(a) · 101 Stat. 1330

   Inserted · 26 U.S.C. § 337(c)

   Pub. L. 100–203 inserted at end “For purposes of this section, the determination of whether any corporation is an 80-percent distributee shall be made without regard to any consolidated return regulation.”

   Source evidence

   Code amendment note
   Subsec. (c). Pub. L. 100–203 inserted at end “For purposes of this section, the determination of whether any corporation is an 80-percent distributee shall be made without regard to any consolidated return regulation.”

   Enacted provision · exact public law section
   (a) Consolidated Return Regulations Not To Apply for 114114 Copy read “to Apply For Purposes”. Purposes of Nonrecognition Under Section 337.— Subsection (c) of section 337 (defining 80-percent distributee) is amended by adding at the end thereof the following new sentence: “For purposes of this section, the determination of whether any corporation is an 80-percent distributee shall be made without regard to any consolidated return regulation.”

3. 1988

   Technical and Miscellaneous Revenue Act of 1988

   Pub. L. 100–647 § 1006(e)(4)(A) · 102 Stat. 3342

   1. Substituted · 26 U.S.C. § 337(b)(2)(B)(i)

      Pub. L. 100–647, § 1006(e)(4)(A), (B), substituted “described in section 511(a)(2)” for “described in section 511(a)(2) or 511(b)(2)”

   2. Substituted · 26 U.S.C. § 337(b)(2)(B)(i)

      Pub. L. 100–647, § 1006(e)(4)(A), (B), substituted “in an activity the income from which is subject to tax under section 511(a)” for “in an unrelated trade or business (as defined in section 513)”

   Source evidence

   Code amendment note
   Subsec. (b)(2)(B)(i). Pub. L. 100–647, § 1006(e)(4)(A), (B), substituted “described in section 511(a)(2)” for “described in section 511(a)(2) or 511(b)(2)” and “in an activity the income from which is subject to tax under section 511(a)” for “in an unrelated trade or business (as defined in section 513)”.

   Enacted provision · exact public law section
   (A) by striking out “or 51 l(b)(2)” in clause (i),

   Effective date note
   Pub. L. 100–647, title I, § 1006(e)(5)(B), Nov. 10, 1988, 102 Stat. 3401, provided that: “The amendment made by subparagraph (A)(ii) [amending this section] shall not apply to any reorganization if before June 10, 1987— 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.

4. 1988

   Technical and Miscellaneous Revenue Act of 1988

   Pub. L. 100–647 § 1006(e)(4)(C) · 102 Stat. 3342

   Substituted · 26 U.S.C. § 337(b)(2)(B)(ii)

   Pub. L. 100–647, § 1006(e)(4)(C), substituted “an activity referred to in clause (i)” for “an unrelated trade or business of such organization”

   Source evidence

   Code amendment note
   Subsec. (b)(2)(B)(ii). Pub. L. 100–647, § 1006(e)(4)(C), substituted “an activity referred to in clause (i)” for “an unrelated trade or business of such organization”.

   Enacted provision · exact public law section
   (C) by striking out “an unrelated trade or business of such organization” in clause (ii) and inserting in lieu thereof “an activity referred to in clause (i)”.

   Effective date note
   Pub. L. 100–647, title I, § 1006(e)(5)(B), Nov. 10, 1988, 102 Stat. 3401, provided that: “The amendment made by subparagraph (A)(ii) [amending this section] shall not apply to any reorganization if before June 10, 1987— 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.

5. 1988

   Technical and Miscellaneous Revenue Act of 1988

   Pub. L. 100–647 § 1006(e)(5)(A) · 102 Stat. 3342

   1. Substituted · 26 U.S.C. § 337(d)

      Pub. L. 100–647, § 1006(e)(5)(A), in introductory provisions, substituted “amendments made by subtitle D of title VI of the Tax Reform Act of 1986” for “amendments made to this subpart by the Tax Reform Act of 1986”, and in par. (1)

   2. Substituted · 26 U.S.C. § 337(d)

      Pub. L. 100–647, § 1006(e)(5)(A), in introductory provisions, substituted “this subchapter) or through the use of a regulated investment company, real estate investment trust, or tax-exempt entity” for “this subchapter)”

   Source evidence

   Code amendment note
   Subsec. (d). Pub. L. 100–647, § 1006(e)(5)(A), in introductory provisions, substituted “amendments made by subtitle D of title VI of the Tax Reform Act of 1986” for “amendments made to this subpart by the Tax Reform Act of 1986”, and in par. (1), substituted “this subchapter) or through the use of a regulated investment company, real estate investment trust, or tax-exempt entity” for “this subchapter)”.

   Enacted provision · exact public law section
   (A) Subsection (d) of section 337 of the 1986 Code is amended— (i) by striking out “made to this subpart by the Tax Reform Act of 1986” and inserting in lieu thereof “made by subtitle D of title VI of the Tax Reform Act of 1986”, and (ii) by inserting “or through the use of a regulated investment company, real estate investment trust, or tax-exempt entity” after “subchapter)” in paragraph (1).

   Effective date note
   Pub. L. 100–647, title I, § 1006(e)(5)(B), Nov. 10, 1988, 102 Stat. 3401, provided that: “The amendment made by subparagraph (A)(ii) [amending this section] shall not apply to any reorganization if before June 10, 1987— 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.

7 of 7 references resolved to an enrolled provision