26 U.S.C. § 311 — Taxability of corporation on distribution

submitted 72 years ago by ch. 736 to r/title-26-INTERNAL-REVENUE-CODE · 206 words · no verdicts yet

in plain englishAI-generated · not legal advice

This law says a corporation usually doesn't owe tax when it hands out its own stock or property to shareholders, unless it's a complete liquidation. But if the corporation gives out property worth more than its tax basis, the corporation must recognize gain as if it had sold that property at fair market value.

(a) General rule. Normally, when a corporation distributes its own stock (or rights to buy its stock) or other property to shareholders - other than as part of shutting down completely - the corporation doesn't have to recognize any gain or loss. Subsection (b) is the exception. (b) Distributions of appreciated property. (1) In general: If a corporation gives a shareholder property (not one of its own IOUs) as part of a distribution covered by "subpart A," and that property is worth more on the market than its adjusted basis, the corporation must recognize gain - treated as if it sold the property to the shareholder at fair market value. (2) Treatment of liabilities: The same liability rules that apply under section 336(b) apply here too. (3) Special rule for certain distributions of partnership or trust interests: If the property given out is a share of a partnership or trust, the Treasury Secretary can write rules that ignore any loss from property someone contributed to that partnership or trust mainly to create a loss on this distribution.

the actual law source: uscode.house.gov ↗public domain

(a) General rule

Except as provided in subsection (b), no gain or loss shall be recognized to a corporation on the distribution (not in complete liquidation) with respect to its stock of—

(1)

its stock (or rights to acquire its stock), or

(2)

property.

(b) Distributions of appreciated property

(1) In general

If—

(A)

a corporation distributes property (other than an obligation of such corporation) to a shareholder in a distribution to which subpart A applies, and

(B)

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.

(2) Treatment of liabilities

Rules similar to the rules of section 336(b) shall apply for purposes of this subsection.

(3) Special rule for certain distributions of partnership or trust interests

If the property distributed consists of an interest in a partnership or trust, the Secretary may by regulations provide that the amount of the gain recognized under paragraph (1) shall be computed without regard to any loss attributable to property contributed to the partnership or trust for the principal purpose of recognizing such loss on the distribution.

Source credit: (Aug. 16, 1954, ch. 736, 68A Stat. 94; Pub. L. 91–172, title IX, § 905(a), (b)(1), Dec. 30, 1969, 83 Stat. 713, 714; Pub. L. 94–452, § 2(b), Oct. 2, 1976, 90 Stat. 1511; Pub. L. 94–455, title XIX, § 1901(a)(42)(A), (B)(i), (C), Oct. 4, 1976, 90 Stat. 1771; Pub. L. 95–600, title VII, § 703(j)(2)(A), (B), Nov. 6, 1978, 92 Stat. 2941; Pub. L. 96–471, § 2(b)(1), Oct. 19, 1980, 94 Stat. 2253; Pub. L. 97–248, title II, § 223(a), Sept. 3, 1982, 96 Stat. 483; Pub. L. 98–369, div. A, title I, § 54(a), title VII, § 712(j), July 18, 1984, 98 Stat. 568, 948; Pub. L. 99–514, title VI, § 631(c), Oct. 22, 1986, 100 Stat. 2272; Pub. L. 100–647, title I, §§ 1006(e)(8)(B), (21)(B), 1018(d)(5)(E), Nov. 10, 1988, 102 Stat. 3401, 3403, 3580.)

history & why it existsrecord from the source credit

1954Enacted · Act of Aug. 16, 1954, ch. 736
1969Amended · Pub. L. 91-172 · 83 Stat. 713, 714
1976Amended · Pub. L. 94-452 · 90 Stat. 1511
1976Amended · Pub. L. 94-455 · 90 Stat. 1771
1978Amended · Pub. L. 95-600 · 92 Stat. 2941
1980Amended · Pub. L. 96-471 · 94 Stat. 2253
1982Amended · Pub. L. 97-248 · 96 Stat. 483
1984Amended · Pub. L. 98-369 · 98 Stat. 568, 948
1986Amended · Pub. L. 99-514 · 100 Stat. 2272
1988Amended · Pub. L. 100-647 · 102 Stat. 3401, 3403, 3580

A history note hasn’t been published yet. The record shows enactment by ch. 736 on 1954-08-16.

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