Cases: Gerdau MacSteel, Inc. v. Commissioner, 139 T.C. 67 (2012)
(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.
Amended 1969
- 1969 Pub. L. 91-172 Pub. L. 91–172 substituted reference to this section for reference to subsec. (b), and omitted reference to rights to acquire its stock.
Cases: Bialo v. Commissioner, 88 T.C. 1132 (1987)
Cited by 31
(b) 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—
Amended 1969
- 1969 Pub. L. 91-172 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.
Cases: Colonial Savings Ass'n v. Commissioner, 854 F.2d 1001 (7th Cir. 1988)
Cited by 11
(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—
Cited by 2
(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.
Cited by 11
(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.
Cited by 4
(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.
Cited by 5
(5) 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).
Amended 1976
- 1976 Pub. L. 94-455 Pub. L. 94–455 struck out “or his delegate” after “Secretary”.
Cited by 4
(c) 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—
Amended 1969, 1976, 1990
- 1990 Pub. L. 101-508 Pub. L. 101–508, § 11322(a), inserted sentence at end specifying the contents of regulations.
- 1976 Pub. L. 94-455 Pub. L. 94–455 struck out “or his delegate” after “Secretary”.
- 1969 Pub. L. 91-172 Pub. L. 91–172 added subsecs. (c) and (d) and redesignated former subsec. (c) as (e).
Cited by 17
(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).
Cited by 1
(d) Definitions
Amended 1969
- 1969 Pub. L. 91-172 Pub. L. 91–172 added subsecs. (c) and (d) and redesignated former subsec. (c) as (e).
(1) Rights to acquire stock For purposes of this section, the term “stock” includes rights to acquire such stock.
Amended 1981, 1990
- 1990 Pub. L. 101-508 Pub. L. 101–508, § 11801(c)(7)(A), struck out “(other than subsection (e))” after “this section”.
- 1981 Pub. L. 97-34 Pub. L. 97–34, § 321(b), inserted “(other than subsection (e))” after “this section”.
(2) Shareholders For purposes of subsections (b) and (c), the term “shareholder” includes a holder of rights or of convertible securities.
Cited by 1
(e) Treatment of purchaser of stripped preferred stock
Amended 1969, 1981, 1990, 1993
- 1993 Pub. L. 103-66 Pub. L. 103–66 added subsec. (e) and redesignated former subsec. (e) as (f).
- 1990 Pub. L. 101-508 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.
- 1981 Pub. L. 97-34 Pub. L. 97–34, § 321(a), added subsec. (e) and redesignated former subsec. (e) as (f).
- 1969 Pub. L. 91-172 Pub. L. 91–172 added subsecs. (c) and (d) and redesignated former subsec. (c) as (e).
Cited by 1
(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—
Cited by 4
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.
Amended 1983
- 1983 Pub. L. 97-448 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”.
- 1983 Pub. L. 97-448 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.
(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.
(6) Purchase For purposes of this subsection, the term “purchase” means—
(7) Cross reference For treatment of stripped interests in certain accounts or entities holding preferred stock, see section 1286(e).
Amended 2004, 2018
- 2018 Pub. L. 115-141 Pub. L. 115–141 substituted “1286(e)” for “1286(f)”.
- 2004 Pub. L. 108-357 Pub. L. 108–357 added par. (7).
(f) Cross references For special rules—
Amended 1981, 1990, 1993
- 1993 Pub. L. 103-66 Pub. L. 103–66 added subsec. (e) and redesignated former subsec. (e) as (f).
- 1990 Pub. L. 101-508 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.
- 1981 Pub. L. 97-34 Pub. L. 97–34, § 321(a), added subsec. (e) and redesignated former subsec. (e) as (f).
(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).