# 26 U.S.C. § 354: Exchanges of stock and securities in certain reorganizations Source: OLRC release point 119-134 . Cite pinpoints as 26 U.S.C. § 354(a)(1). ## § 354(a) General rule **§ 354(a)(1) In general.** No gain or loss shall be recognized if stock or securities in a corporation a party to a reorganization are, in pursuance of the plan of reorganization, exchanged solely for stock or securities in such corporation or in another corporation a party to the reorganization. **§ 354(a)(2) Limitation.** **§ 354(a)(2)(A) Excess principal amount.** Paragraph (1) shall not apply if— **§ 354(a)(2)(A)(i)** the principal amount of any such securities received exceeds the principal amount of any such securities surrendered, or **§ 354(a)(2)(A)(ii)** any such securities are received and no such securities are surrendered. **§ 354(a)(2)(B) Property attributable to accrued interest.** Neither paragraph (1) nor so much of section 356 as relates to paragraph (1) shall apply to the extent that any stock (including nonqualified preferred stock, as defined in section 351(g)(2)), securities, or other property received is attributable to interest which has accrued on securities on or after the beginning of the holder’s holding period. **§ 354(a)(2)(C) Nonqualified preferred stock.** **§ 354(a)(2)(C)(i) In general.** Nonqualified preferred stock (as defined in section 351(g)(2)) received in exchange for stock other than nonqualified preferred stock (as so defined) shall not be treated as stock or securities. **§ 354(a)(2)(C)(ii) Recapitalizations of family-owned corporations.** **§ 354(a)(2)(C)(ii)(I) In general.** Clause (i) shall not apply in the case of a recapitalization under section 368(a)(1)(E) of a family-owned corporation. **§ 354(a)(2)(C)(ii)(II) Family-owned corporation.** For purposes of this clause, except as provided in regulations, the term “family-owned corporation” means any corporation which is described in clause (i) of section 447(d)(2)(C) [OLRC note: See References in Text note below.] throughout the 8-year period beginning on the date which is 5 years before the date of the recapitalization. For purposes of the preceding sentence, stock shall not be treated as owned by a family member during any period described in section 355(d)(6)(B). **§ 354(a)(2)(C)(ii)(III) Extension of statute of limitations.** The statutory period for the assessment of any deficiency attributable to a corporation failing to be a family-owned corporation shall not expire before the expiration of 3 years after the date the Secretary is notified by the corporation (in such manner as the Secretary may prescribe) of such failure, and such deficiency may be assessed before the expiration of such 3-year period notwithstanding the provisions of any other law or rule of law which would otherwise prevent such assessment. **§ 354(a)(3) Cross references.** **§ 354(a)(3)(A)** For treatment of the exchange if any property is received which is not permitted to be received under this subsection (including nonqualified preferred stock and an excess principal amount of securities received over securities surrendered, but not including property to which paragraph (2)(B) applies), see section 356. **§ 354(a)(3)(B)** For treatment of accrued interest in the case of an exchange described in paragraph (2)(B), see section 61. ## § 354(b) Exception **§ 354(b)(1) In general.** Subsection (a) shall not apply to an exchange in pursuance of a plan of reorganization within the meaning of subparagraph (D) or (G) of section 368(a)(1), unless— **§ 354(b)(1)(A)** the corporation to which the assets are transferred acquires substantially all of the assets of the transferor of such assets; and **§ 354(b)(1)(B)** the stock, securities, and other properties received by such transferor, as well as the other properties of such transferor, are distributed in pursuance of the plan of reorganization. **§ 354(b)(2) Cross reference.** For special rules for certain exchanges in pursuance of plans of reorganization within the meaning of subparagraph (D) or (G) of section 368(a)(1), see section 355. ## § 354(c) Certain railroad reorganizations Notwithstanding any other provision of this subchapter, subsection (a)(1) (and so much of section 356 as relates to this section) shall apply with respect to a plan of reorganization (whether or not a reorganization within the meaning of section 368(a)) for a railroad confirmed under section 1173 of title 11 of the United States Code, as being in the public interest. ## Regulations - [Treas. Reg. § 1.354-1](/26/reg/1.354-1.md): Exchanges of stock and securities in certain reorganizations. (interprets § 354) ## Final rules - [65 FR 58650](https://www.federalregister.gov/documents/2000/10/02/00-25258/treatment-of-nonqualified-preferred-stock-and-other-preferred-stock-in-certain-exchanges-and) (2000): Treatment of Nonqualified Preferred Stock and Other Preferred Stock in Certain Exchanges and Distributions - [65 FR 31078](https://www.federalregister.gov/documents/2000/05/16/00-11899/reorganizations-nonqualified-preferred-stock) (2000): Reorganizations; Nonqualified Preferred Stock - [63 FR 409](https://www.federalregister.gov/documents/1998/01/06/98-5/reorganizations-treatment-of-warrants-as-securities) (1998): Reorganizations/ Treatment of Warrants as Securities ## Leading cases - [Reef Corp. v. Commissioner, 368 F.2d 125 (5th Cir. 1966)](https://www.courtlistener.com/opinion/273529/reef-corporation-v-commissioner-of-internal-revenue-commissioner-of/) ## Connections Cites: § 61 Gross income defined; § 351 Transfer to corporation controlled by transferor; § 355 Distribution of stock and securities of a controlled corporation; § 356 Receipt of additional consideration; § 368 Definitions relating to corporate reorganizations; § 447 Method of accounting for corporations engaged in farming Cited by: § 83 Property transferred in connection with performance of services; § 108 Income from discharge of indebtedness; § 332 Complete liquidations of subsidiaries; § 356 Receipt of additional consideration; § 368 Definitions relating to corporate reorganizations; § 381 Carryovers in certain corporate acquisitions; § 382 Limitation on net operating loss carryforwards and certain built-in losses following ownership change; § 424 Definitions and special rules; § 953 Insurance income; § 1276 Disposition gain representing accrued market discount treated as ordinary income Derived from: 1939 § 112(b)(3) ## Amendments - 1954-08-16: [Act Aug. 16, 1954, ch. 736](/26/act/1954-ch736.md), 68A Stat. 112 - 1976-03-31: [Pub. L. 94-253](/26/act/94-253.md), 90 Stat. 296 - 1978-10-17: [Pub. L. 95-473](/26/act/95-473.md), 92 Stat. 1465 - 1980-12-24: [Pub. L. 96-589](/26/act/96-589.md), 94 Stat. 3403 - 1990-11-05: [Pub. L. 101-508](/26/act/101-508.md), 104 Stat. 1388 - 1995-12-29: [Pub. L. 104-88](/26/act/104-88.md), 109 Stat. 944 - 1997-08-05: [Pub. L. 105-34](/26/act/105-34.md), 111 Stat. 920 - 1998-07-22: [Pub. L. 105-206](/26/act/105-206.md), 112 Stat. 814