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26 U.S.C. § 334 — Basis of property received in liquidations

submitted 72 years ago by ch. 736 to r/title-26-INTERNAL-REVENUE-CODE · 242 words · no verdicts yet

in plain englishAI-generated · not legal advice

When a shareholder gets property from a company that's completely liquidating, and gain or loss is taxed on that transfer, the shareholder's tax basis in the property is its fair market value at the time. Special rules apply when a parent company gets property from liquidating a subsidiary it controls, based on section 332.

(a) General rule — If a shareholder receives property in a complete liquidation, and the transfer triggers recognized gain or loss, that shareholder's tax basis in the property is its fair market value at the time of the distribution. (b) Liquidation of subsidiary (1) If a corporate shareholder receives property in a complete liquidation covered by section 332 (or a related transfer under section 337(b)(1)), the shareholder's basis in that property normally carries over from the original company's basis — with two exceptions: (A) if the liquidating company recognized gain or loss on that property, the shareholder's basis becomes its fair market value at the time of distribution instead; and (B) for "loss importation property" described in section 362(e)(1)(B), the basis also becomes fair market value if the shareholder's carryover basis in all such property would otherwise exceed its combined fair market value right after the liquidation. (2) "Corporate distributee" here means only a corporation that meets the stock-ownership requirements in section 332(b).
the actual law source: uscode.house.gov ↗public domain
(a) General rule

If property is received in a distribution in complete liquidation, and if gain or loss is recognized on receipt of such property, then the basis of the property in the hands of the distributee shall be the fair market value of such property at the time of the distribution.

(b) Liquidation of subsidiary
(1) In general

If property is received by a corporate distributee in a distribution in a complete liquidation to which section 332 applies (or in a transfer described in section 337(b)(1)), the basis of such property in the hands of such distributee shall be the same as it would be in the hands of the transferor; except that, in the hands of such distributee—

(A)

the basis of such property shall be the fair market value of the property at the time of the distribution in any case in which gain or loss is recognized by the liquidating corporation with respect to such property, and

(B)

the basis of any property described in section 362(e)(1)(B) shall be the fair market value of the property at the time of the distribution in any case in which such distributee’s aggregate adjusted basis of such property would (but for this subparagraph) exceed the fair market value of such property immediately after such liquidation.

(2) Corporate distributee

For purposes of this subsection, the term “corporate distributee” means only the corporation which meets the stock ownership requirements specified in section 332(b).

Source credit: (Aug. 16, 1954, ch. 736, 68A Stat. 104; Pub. L. 89–809, title II, § 202(a), (b), Nov. 13, 1966, 80 Stat. 1576; Pub. L. 94–455, title XIX, §§ 1901(a)(45), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1772, 1834; Pub. L. 97–248, title II, §§ 222(e)(1)(C), 224(b), Sept. 3, 1982, 96 Stat. 480, 488; Pub. L. 99–514, title VI, § 631(e)(4), Oct. 22, 1986, 100 Stat. 2273; Pub. L. 100–647, title I, § 1006(e)(6), Nov. 10, 1988, 102 Stat. 3401; Pub. L. 105–277, div. J, title III, § 3001(b)(2), Oct. 21, 1998, 112 Stat. 2681–904; Pub. L. 108–357, title VIII, § 836(b), Oct. 22, 2004, 118 Stat. 1595; Pub. L. 109–135, title IV, § 403(dd)(1), Dec. 21, 2005, 119 Stat. 2630.)

history & why it existsrecord from the source credit
  • 1954Enacted · Act of Aug. 16, 1954, ch. 736
  • 1966Amended · Pub. L. 89-809 · 80 Stat. 1576
  • 1976Amended · Pub. L. 94-455 · 90 Stat. 1772, 1834
  • 1982Amended · Pub. L. 97-248 · 96 Stat. 480, 488
  • 1986Amended · Pub. L. 99-514 · 100 Stat. 2273
  • 1988Amended · Pub. L. 100-647 · 102 Stat. 3401
  • 1998Amended · Pub. L. 105-277 · 112 Stat. 2681
  • 2004Amended · Pub. L. 108-357 · 118 Stat. 1595
  • 2005Amended · Pub. L. 109-135 · 119 Stat. 2630

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

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