26 U.S.C. § 332

Complete liquidations of subsidiaries

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(a) General rule

No gain or loss shall be recognized on the receipt by a corporation of property distributed in complete liquidation of another corporation.

(b) Liquidations to which section appliesFor purposes of this section, a distribution shall be considered to be in complete liquidation only if—(1) the corporation receiving such property was, on the date of the adoption of the plan of liquidation, and has continued to be at all times until the receipt of the property, the owner of stock (in such other corporation) meeting the requirements of section 1504(a)(2); and either(2) the distribution is by such other corporation in complete cancellation or redemption of all its stock, and the transfer of all the property occurs within the taxable year; in such case the adoption by the shareholders of the resolution under which is authorized the distribution of all the assets of such corporation in complete cancellation or redemption of all its stock shall be considered an adoption of a plan of liquidation, even though no time for the completion of the transfer of the property is specified in such resolution; or(3) such distribution is one of a series of distributions by such other corporation in complete cancellation or redemption of all its stock in accordance with a plan of liquidation under which the transfer of all the property under the liquidation is to be completed within 3 years from the close of the taxable year during which is made the first of the series of distributions under the plan, except that if such transfer is not completed within such period, or if the taxpayer does not continue qualified under paragraph (1) until the completion of such transfer, no distribution under the plan shall be considered a distribution in complete liquidation.If such transfer of all the property does not occur within the taxable year, the Secretary may require of the taxpayer such bond, or waiver of the statute of limitations on assessment and collection, or both, as he may deem necessary to insure, if the transfer of the property is not completed within such 3-year period, or if the taxpayer does not continue qualified under paragraph (1) until the completion of such transfer, the assessment and collection of all income taxes then imposed by law for such taxable year or subsequent taxable years, to the extent attributable to property so received. A distribution otherwise constituting a distribution in complete liquidation within the meaning of this subsection shall not be considered as not constituting such a distribution merely because it does not constitute a distribution or liquidation within the meaning of the corporate law under which the distribution is made; and for purposes of this subsection a transfer of property of such other corporation to the taxpayer shall not be considered as not constituting a distribution (or one of a series of distributions) in complete cancellation or redemption of all the stock of such other corporation, merely because the carrying out of the plan involves (A) the transfer under the plan to the taxpayer by such other corporation of property, not attributable to shares owned by the taxpayer, on an exchange described in section 361, and (B) the complete cancellation or redemption under the plan, as a result of exchanges described in section 354, of the shares not owned by the taxpayer.(c) Deductible liquidating distributions of regulated investment companies and real estate investment trusts

If a corporation receives a distribution from a regulated investment company or a real estate investment trust which is considered under subsection (b) as being in complete liquidation of such company or trust, then, notwithstanding any other provision of this chapter, such corporation shall recognize and treat as a dividend from such company or trust an amount equal to the deduction for dividends paid allowable to such company or trust by reason of such distribution.

(d) Recognition of gain on liquidation of certain holding companies(1) In generalIn the case of any distribution to a foreign corporation in complete liquidation of an applicable holding company—(A) subsection (a) and section 331 shall not apply to such distribution, and(B) such distribution shall be treated as a distribution of property to which section 301 applies.(2) Applicable holding companyFor purposes of this subsection:(A) In generalThe term “applicable holding company” means any domestic corporation—(i) which is a common parent of an affiliated group,(ii) stock of which is directly owned by the distributee foreign corporation,(iii) substantially all of the assets of which consist of stock in other members of such affiliated group, and(iv) which has not been in existence at all times during the 5 years immediately preceding the date of the liquidation.(B) Affiliated group

For purposes of this subsection, the term “affiliated group” has the meaning given such term by section 1504(a) (without regard to paragraph (2) of section 1504(b)).

(3) Coordination with subpart F

If the distributee of a distribution described in paragraph (1) is a controlled foreign corporation (as defined in section 957), then notwithstanding paragraph (1) or subsection (a), such distribution shall be treated as a distribution to which section 331 applies.

(4) Regulations

The Secretary shall provide such regulations as appropriate to prevent the abuse of this subsection, including regulations which provide, for the purposes of clause (iv) of paragraph (2)(A), that a corporation is not in existence for any period unless it is engaged in the active conduct of a trade or business or owns a significant ownership interest in another corporation so engaged.

(Aug. 16, 1954, ch. 736, 68A Stat. 102; Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 99–514, title VI, § 631(e)(2), title XVIII, § 1804(e)(6)(A), Oct. 22, 1986, 100 Stat. 2273, 2803; Pub. L. 105–277, div. J, title III, § 3001(a), (b)(1), Oct. 21, 1998, 112 Stat. 2681–904; Pub. L. 108–357, title VIII, § 893(a), Oct. 22, 2004, 118 Stat. 1646; Pub. L. 109–135, title IV, § 412(v), Dec. 21, 2005, 119 Stat. 2638; Pub. L. 115–141, div. U, title IV, § 401(d)(1)(D)(xvii)(III), Mar. 23, 2018, 132 Stat. 1208.)Editorial NotesAmendments

2018—Subsec. (d)(2)(B). Pub. L. 115–141 substituted “paragraph (2)” for “paragraphs (2) and (4)”.

2005—Subsec. (d)(1)(B). Pub. L. 109–135 substituted “distribution of property to which section 301 applies” for “distribution to which section 301 applies”.

2004—Subsec. (d). Pub. L. 108–357 added subsec. (d).

1998—Subsec. (b). Pub. L. 105–277, § 3001(b)(1), substituted “this section” for “subsection (a)” in introductory provisions.

Subsec. (c). Pub. L. 105–277, § 3001(a), added subsec. (c).

1986—Subsec. (b)(1). Pub. L. 99–514, § 1804(e)(6)(A), amended par. (1) generally. Prior to amendment, par. (1) read as follows: “the corporation receiving such property was, on the date of the adoption of the plan of liquidation, and has continued to be at all times until the receipt of the property, the owner of stock (in such other corporation) possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote and the owner of at least 80 percent of the total number of shares of all other classes of stock (except nonvoting stock which is limited and preferred as to dividends); and either”.

Subsec. (c). Pub. L. 99–514, § 631(e)(2), struck out subsec. (c) containing special rule for indebtedness of subsidiary to parent in relation to complete liquidations of subsidiaries.

1976—Subsec. (b). Pub. L. 94–455 struck out “or his delegate” after “Secretary”.

Statutory Notes and Related SubsidiariesEffective Date of 2004 Amendment

Pub. L. 108–357, title VIII, § 893(b), Oct. 22, 2004, 118 Stat. 1647, provided that: “The amendment made by this section [amending this section] shall apply to distributions in complete liquidation occurring on or after the date of the enactment of this Act [Oct. 22, 2004].”

Effective Date of 1998 Amendment

Pub. L. 105–277, div. J, title III, § 3001(c), Oct. 21, 1998, 112 Stat. 2681–904, provided that: “The amendments made by this section [amending this section and section 334 of this title] shall apply to distributions after May 21, 1998.”

Effective Date of 1986 Amendment

Amendment by section 631(e)(2) of Pub. L. 99–514 applicable to any distribution in complete liquidation, and any sale or exchange, made by a corporation after July 31, 1986, unless such corporation is completely liquidated before Jan. 1, 1987, any transaction described in section 338 of this title for which the acquisition date occurs after Dec. 31, 1986, and any distribution, not in complete liquidation, made after Dec. 31, 1986, with exceptions and special and transitional rules, see section 633 of Pub. L. 99–514, set out as an Effective Date note under section 336 of this title.

Pub. L. 99–514, title XVIII, § 1804(e)(6)(B), Oct. 22, 1986, 100 Stat. 2803, provided that:“(i)In general.—Except as provided in clause (iii), the amendment made by subparagraph (A) [amending this section] shall apply with respect to plans of complete liquidation adopted after March 28, 1985.“(ii)Certain distributions made after december 31, 1984.—Except as provided in clause (iii), the amendment made by subparagraph (A) shall also apply with respect to plans of complete liquidations adopted on or before March 28, 1985, pursuant to which any distribution is made in a taxable year beginning after December 31, 1984 (December 31, 1983, in the case of an affiliated group to which an election under section 60(b)(7) of the Tax Reform Act of 1984 [Pub. L. 98–369, set out as a note under section 1504 of this title] applies), but only if the liquidating corporation and any corporation which receives a distribution in complete liquidation of such corporation are members of an affiliated group of corporations filing a consolidated return for the taxable year which includes the date of the distribution.“(iii)Transitional rule for affiliated groups.—The amendment made by subparagraph (A) shall not apply with respect to plans of complete liquidation if the liquidating corporation is a member of an affiliated group of corporations under section 60(b) (2), (5), (6), or (8) of the Tax Reform Act of 1984 [Pub. L. 98–369, set out as a note under section 1504 of this title], for all taxable years which include the date of any distribution pursuant to such plan.”

Savings Provision

For provisions that nothing in amendment by Pub. L. 115–141 be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to Mar. 23, 2018, for purposes of determining liability for tax for periods ending after Mar. 23, 2018, see section 401(e) of Pub. L. 115–141, set out as a note under section 23 of this title.

Plan Amendments Not Required Until January 1, 1989

For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of Pub. L. 99–514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. L. 99–514, as amended, set out as a note under section 401 of this title.

Notes of Decisions

Cited in 24 cases (1 in the last 5 years), 1939–2025 · leading case: Newark Morning Ledger Co. v. United States

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Newark Morning Ledger Co. v. United States (1993) scotus · cites it 2× “See 26 U. S. C. §§ 332 and 334(b)(2) (1976 ed.”

In the Matter of Chrome Plate, Inc., Bankrupt. Chrome Plate, Inc. v. District Director of Internal Revenue, United State (1980) ca5 · cites it 4× “One of the exceptions to § 1001(c), which is applicable in this case is 26 U.S.C. § 332 . If the conditions of § 332 are met, the parent corporation will realize no gain or loss on the receipt of property distributed in complete liquidation of a subsidiary.”

David H. Bruce v. United States (1985) ca9 “…further proceedings relating to the application of §§ 332(a)(1) and 3770(a)(1) of the Internal Revenue Code of 1939, 26 U.S.C. §§ 332 (a)(1) & 3770(a)(1), the predecessor provisions to § 6402(a) of the 1954 Code. Thus, the Morse court left open the issue presented here. In…”

Noteman v. Welch (1939) ca1 · cites it 2× “100 reads: “He [The Commissioner] shall establish the rate of interest to be collected, and in fixing said rate shall have due regard to the amount of the loan, and the nature of D the security, and the time for which the loan is made; but the total amount to be paid on any loan…”

Tennessee-Carolina Transportation, Inc. v. Commissioner of Internal Revenue (1978) ca6 “In a liquidation under 26 U.S.C. §§ 332 and 334(b)(2) the value of the liquidating corporation’s previously expensed assets is reflected in the amount paid to its shareholders for their stock.”

Citizens Federal Savings and Loan Association of Cleveland v. United States (1961) cafc “Title 26 U.S.C. §§ 332 (a), 354(a) (1). 12 . Title 26 U.”

Commissioner of Revenue v. Gillette Co. (2009) mass “§ 381 (a)] applies,” which includes tax-free liquidations pursuant to 26 U.S.C. § 332 (2000). See 26 U.S.C. §§ 50 (a)(4)(B), 381(a)(1) (2000).”

R Ball for R Ball III by Appt v. Commissioner of IRS (2014) ca3 · cites it 4× “” 26 U.S.C. § 332 (a) (emphasis added); see also § 337(a) (“No gain or loss shall be recognized to the liquidating corporation on the distribution to the 80-percent distributee of any property in a complete liquidation to which section 332 applies.”

Super Food Services, Inc. v. United States (1969) ca7 “On August 31, 1959, the Johnson company was liquidated pursuant to Section 332 of the Internal Revenue Code ( 26 U.S.C. § 332 ), and all its assets distributed to taxpayer.”

Calavo, Inc., and Calavo Growers of California, Successor to Assets and Liabilities of Calavo, Inc. v. Commissioner of I (1962) ca9 “On September 30, 1965, a statutory merger (a non-taxable transaction under § 332(a) of the Internal Revenue Code of 1954, 26 U.S.C.A. § 332 (a), was effectuated pursuant to California law by which Calavo Growers succeeded to the assets and liabilities of Calavo, Inc.”

McCrory Corporation v. United States (1981) ca2 “§ 332, 26 U.S.C. § 332 , pursuant to which no gain or loss is “recognized on the receipt by a corporation of property distributed in complete liquidation of another corporation.”

Gerli & Co., Inc. v. Commissioner of Internal Revenue (1982) ca2 “On October 26, 1964, Gerli applied to the Internal Revenue Service (“IRS”) for a ruling that the liquidation of LFT would be accorded tax-free treatment pursuant to 26 U.S.C. §§ 332 and 367. Section 332 provides that complete liquidation of a subsidiary corporation which is at…”

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