# 26 U.S.C. § 356: Receipt of additional consideration Source: OLRC release point 119-134 . Cite pinpoints as 26 U.S.C. § 356(a)(1). ## § 356(a) Gain on exchanges **§ 356(a)(1) Recognition of gain.** If— **§ 356(a)(1)(A)** section 354 or 355 would apply to an exchange but for the fact that **§ 356(a)(1)(B)** the property received in the exchange consists not only of property permitted by section 354 or 355 to be received without the recognition of gain but also of other property or money, then the gain, if any, to the recipient shall be recognized, but in an amount not in excess of the sum of such money and the fair market value of such other property. **§ 356(a)(2) Treatment as dividend.** If an exchange is described in paragraph (1) but has the effect of the distribution of a dividend (determined with the application of section 318(a)), then there shall be treated as a dividend to each distributee such an amount of the gain recognized under paragraph (1) as is not in excess of his ratable share of the undistributed earnings and profits of the corporation accumulated after February 28, 1913. The remainder, if any, of the gain recognized under paragraph (1) shall be treated as gain from the exchange of property. ## § 356(b) Additional consideration received in certain distributions If— **§ 356(b)(1)** section 355 would apply to a distribution but for the fact that **§ 356(b)(2)** the property received in the distribution consists not only of property permitted by section 355 to be received without the recognition of gain, but also of other property or money, then an amount equal to the sum of such money and the fair market value of such other property shall be treated as a distribution of property to which section 301 applies. ## § 356(c) Loss If— **§ 356(c)(1)** section 354 would apply to an exchange or section 355 would apply to an exchange or distribution, but for the fact that **§ 356(c)(2)** the property received in the exchange or distribution consists not only of property permitted by section 354 or 355 to be received without the recognition of gain or loss, but also of other property or money, then no loss from the exchange or distribution shall be recognized. ## § 356(d) Securities as other property For purposes of this section— **§ 356(d)(1) In general.** Except as provided in paragraph (2), the term “other property” includes securities. **§ 356(d)(2) Exceptions.** **§ 356(d)(2)(A) Securities with respect to which nonrecognition of gain would be permitted.** The term “other property” does not include securities to the extent that, under section 354 or 355, such securities would be permitted to be received without the recognition of gain. **§ 356(d)(2)(B) Greater principal amount in section 354 exchange.** If— **§ 356(d)(2)(B)(i)** in an exchange described in section 354 (other than subsection (c) thereof), securities of a corporation a party to the reorganization are surrendered and securities of any corporation a party to the reorganization are received, and **§ 356(d)(2)(B)(ii)** the principal amount of such securities received exceeds the principal amount of such securities surrendered, then, with respect to such securities received, the term “other property” means only the fair market value of such excess. For purposes of this subparagraph and subparagraph (C), if no securities are surrendered, the excess shall be the entire principal amount of the securities received. **§ 356(d)(2)(C) Greater principal amount in section 355 transaction.** If, in an exchange or distribution described in section 355, the principal amount of the securities in the controlled corporation which are received exceeds the principal amount of the securities in the distributing corporation which are surrendered, then, with respect to such securities received, the term “other property” means only the fair market value of such excess. ## § 356(e) Nonqualified preferred stock treated as other property For purposes of this section— **§ 356(e)(1) In general.** Except as provided in paragraph (2), the term “other property” includes nonqualified preferred stock (as defined in section 351(g)(2)). **§ 356(e)(2) Exception.** The term “other property” does not include nonqualified preferred stock (as so defined) to the extent that, under section 354 or 355, such preferred stock would be permitted to be received without the recognition of gain. ## § 356(f) Exchanges for section 306 stock Notwithstanding any other provision of this section, to the extent that any of the other property (or money) is received in exchange for section 306 stock, an amount equal to the fair market value of such other property (or the amount of such money) shall be treated as a distribution of property to which section 301 applies. ## § 356(g) Transactions involving gift or compensation For special rules for a transaction described in section 354, 355, or this section, but which— **§ 356(g)(1)** results in a gift, see section 2501 and following, or **§ 356(g)(2)** has the effect of the payment of compensation, see section 61(a)(1). ## Regulations - [Treas. Reg. § 1.356-1](/26/reg/1.356-1.md): Receipt of additional consideration in connection with an exchange. (interprets § 356) - [Treas. Reg. § 1.356-2](/26/reg/1.356-2.md): Receipt of additional consideration not in connection with an exchange. (interprets § 356) - [Treas. Reg. § 1.356-3](/26/reg/1.356-3.md): Rules for treatment of securities as “other property”. (interprets § 356) - [Treas. Reg. § 1.356-4](/26/reg/1.356-4.md): Exchanges for section 306 stock. (interprets § 356) - [Treas. Reg. § 1.356-5](/26/reg/1.356-5.md): Transactions involving gift or compensation. (interprets § 356) - [Treas. Reg. § 1.356-6](/26/reg/1.356-6.md): Rules for treatment of nonqualified preferred stock as other property. (interprets § 356) - [Treas. Reg. § 1.356-7](/26/reg/1.356-7.md): Rules for treatment of nonqualified preferred stock and other preferred stock received in certain transactions. (interprets § 356) ## Final rules - [86 FR 52612](https://www.federalregister.gov/documents/2021/09/22/2021-19980/treatment-of-distributions-of-property-from-a-corporation-to-a-shareholder) (2021): Treatment of Distributions of Property From a Corporation to a Shareholder - [71 FR 4264](https://www.federalregister.gov/documents/2006/01/26/06-585/determination-of-basis-of-stock-or-securities-received-in-exchange-for-or-with-respect-to-stock-or) (2006): Determination of Basis of Stock or Securities Received in Exchange for, or With Respect to, Stock or Securities in Certain Transactions; Treatment of Excess Loss Accounts - [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 - [Commissioner v. Clark, 489 U.S. 726 (1989)](https://www.courtlistener.com/opinion/112223/commissioner-v-clark/) - [Tribune Publishing Co. v. United States, 836 F.2d 1176 (9th Cir. 1988)](https://www.courtlistener.com/opinion/499804/tribune-publishing-company-v-united-states/) ## Connections Cites: § 61 Gross income defined; § 301 Distributions of property; § 306 Dispositions of certain stock; § 318 Constructive ownership of stock; § 351 Transfer to corporation controlled by transferor; § 354 Exchanges of stock and securities in certain reorganizations; § 355 Distribution of stock and securities of a controlled corporation; § 2501 Imposition of tax Cited by: § 306 Dispositions of certain stock; § 312 Effect on earnings and profits; § 351 Transfer to corporation controlled by transferor; § 354 Exchanges of stock and securities in certain reorganizations; § 355 Distribution of stock and securities of a controlled corporation; § 358 Basis to distributees; § 367 Foreign corporations; § 368 Definitions relating to corporate reorganizations; § 453 Installment method; § 856 Definition of real estate investment trust; § 1059 Corporate shareholder’s basis in stock reduced by nontaxed portion of extraordinary dividends; § 1223 Holding period of property; § 6166 Extension of time for payment of estate tax where estate consists largely of interest in closely held business Derived from: 1939 § 112(c); 1939 § 112(e) ## Amendments - 1954-08-16: [Act Aug. 16, 1954, ch. 736](/26/act/1954-ch736.md), 68A Stat. 115 - 1976-03-31: [Pub. L. 94-253](/26/act/94-253.md), 90 Stat. 296 - 1982-09-03: [Pub. L. 97-248](/26/act/97-248.md), 96 Stat. 492 - 1990-11-05: [Pub. L. 101-508](/26/act/101-508.md), 104 Stat. 1388 - 1997-08-05: [Pub. L. 105-34](/26/act/105-34.md), 111 Stat. 921