26 U.S.C. § 331

Gain or loss to shareholder in corporate liquidations

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(a) Distributions in complete liquidation treated as exchanges

Amounts received by a shareholder in a distribution in complete liquidation of a corporation shall be treated as in full payment in exchange for the stock.

(b) Nonapplication of section 301

Section 301 (relating to effects on shareholder of distributions of property) shall not apply to any distribution of property (other than a distribution referred to in paragraph (2)(B) of section 316(b)) in complete liquidation.

For general rule for determination of the amount of gain or loss recognized, see section 1001.

(Aug. 16, 1954, ch. 736, 68A Stat. 101; Pub. L. 88–272, title II, § 225(f)(2), Feb. 26, 1964, 78 Stat. 88; Pub. L. 94–455, title XIX, § 1901(b)(28)(A), Oct. 4, 1976, 90 Stat. 1799; Pub. L. 97–248, title II, § 222(a), (e)(1)(B), Sept. 3, 1982, 96 Stat. 478, 480; Pub. L. 115–141, div. U, title IV, § 401(a)(63), Mar. 23, 2018, 132 Stat. 1187.)Editorial NotesAmendments

2018—Pub. L. 115–141 substituted “shareholder” for “shareholders” in section catchline.

1982—Subsec. (a). Pub. L. 97–248, § 222(a), substituted provisions that amounts received by a shareholder in a distribution in complete liquidation of a corporation shall be treated as in full payment in exchange for the stock for provisions that, in complete liquidations, amounts distributed shall be treated as in full payment in exchange for the stock, while amounts distributed in partial liquidation shall be treated as in part or full payment in exchange for the stock.

Subsec. (b). Pub. L. 97–248, § 222(e)(1)(B), struck out “partial or” before “complete liquidation”.

1976—Subsec. (c). Pub. L. 94–455 substituted “reference” for “references” in heading and struck out cross reference relating to general rule for determination of the amount of gain or loss to the distributee and substituted “section 1001” for “section 1002”.

1964—Subsec. (b). Pub. L. 88–272 inserted “(other than a distribution referred to in paragraph (2)(B) of section 316(b))”.

Statutory Notes and Related SubsidiariesEffective Date of 1982 Amendment

Amendment by Pub. L. 97–248 applicable to distributions after Aug. 31, 1982, with exceptions for certain partial liquidations, see section 222(f) of Pub. L. 97–248, set out as a note under section 302 of this title.

Effective Date of 1976 Amendment

Amendment by Pub. L. 94–455 effective for taxable years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L. 94–455, set out as a note under section 2 of this title.

Effective Date of 1964 Amendment

Amendment by Pub. L. 88–272 applicable to distribution made in any taxable year of the distributing corporation beginning after Dec. 31, 1963, see section 225(l) of Pub. L. 88–272, set out as a note under section 316 of this title.

Liquidations Before January 1, 1966

Pub. L. 88–272, title II, § 225(h), Feb. 26, 1964, 78 Stat. 90, provided that in the case of corporations referred to in former subsec. (g)(3) of this section the amendments made by section 225 of Pub. L. 88–272 do not apply if there is a complete liquidation of such corporation and if the distribution of all the property under such liquidation occurs before Jan. 1, 1966, except for certain liquidations to which section 332 of this title applies.

Notes of Decisions

Cited in 41 cases, 1939–2015 · leading case: Noteman v. Welch

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Noteman v. Welch (1939) ca1 · cites it 2× “751 , 26 U.S.C. § 331 (1934), 26 U.S.C.A. § 331 .”

Legrand-Brock v. Brock (2008) texapp “” 26 U.S.C. § 331 (a) (2002); see also generally Hellmich v.”

Short v. Short (2011) moctapp “26 U.S.C. § 331 (a) (2002). There is a difference between retained earnings severed from an existing corporation’s “other” assets and distributed to shareholders as cash dividends, and retained earnings which make up 97% of a dissolved corporation’s assets which are liquidated…”

Richard T. Brigham and Margaret H. Brigham v. United States (1976) ca3 · cites it 2× “3 Resolution of this issue *1314 will determine whether a certain portion of the gain taxpayers recognized on the final liquidation of the corporation was taxable as a capital gain, 26 U.S.C. § 331 , or as a dividend includible in their gross income to the extent of their pro…”

In the Matter of Chrome Plate, Inc., Bankrupt. Chrome Plate, Inc. v. District Director of Internal Revenue, United State (1980) ca5 “THE BASIS UNDER THE INTERNAL REVENUE CODE 26 U.S.C. § 331 (a)(1) provides the general rule regarding a complete liquidation of a corporation.”

Commissioner of Internal Revenue v. Hyman H. Berghash and Rose Berghash, Commissioner of Internal Revenue v. Delavan-Bai (1966) ca2 “26 U.S.C. § 331 § 331. Gain or loss to shareholders in corporate liquidations.”

Estate of Bernard H. Stauffer, Bonnie H. Stauffer v. Commissioner of Internal Revenue (1968) ca9 “The cases in which the “F” reorganization has been brought into litigation revolve principally around the reorganization-liquidation problem, wherein the shareholders of the liquidated transferor corporation in an “A”, “C” or “D” type reorganization seek to treat the increment…”

Atlas Tool Co. v. Commissioner (1980) ca3 · cites it 3× “” 26 U.S.C. § 331 (1976). They claimed an adjusted basis of $10,000 for the Fletcher stock, and paid tax on a long-term capital gain of $390,000.”

Edward J. Prescott and Wanda D. Prescott v. Commissioner of Internal Revenue, L. W. Simpson and Shirley Simpson v. Unite (1977) ca8 “26 U.S.C. § 331 (a)(1). Income is realized on such a liquidation to the extent that the amount realized exceeds the taxpayer’s adjusted basis in his shares.”

Philip Caprio v. New York State Department of Taxation and Finance (2015) ny “Because 26 USC § 331 (a) states that “[a]mounts received by a shareholder in a distribution in complete liquidation of a corporation shall be treated as in full payment in exchange for the stock” (emphasis added), plaintiffs argue that they must be treated as having sold stock…”

Mansfield Hardwood Lumber Company v. Hattie A. Johnson (1959) ca5 “In the Spring of 1954, some negotiations for a liquidation sale were resumed in earnest; and, after receiving word that Sections 331(a)(1) and 337(a) of the 1954 Internal Revenue Code, 26 U.S.C.A. §§ 331 (a) (1), 337(a) would become effective on August 16, 1954, which would…”

United States v. Gerald and Gladys Carey (1961) ca8 “§ 346 (a) (2)], constituted a distribution to be treated as a partial liquidation of the corporation under Section 346(a) (2), under Section 331(a) (2) [ 26 U.S.C.A. § 331 (a) (2)] thereof as being in full payment and the stock redeemed from Carey and therefore, also, taxable at…”

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