U.S. Code » Title 26 » Subtitle Subtitle A— Income Taxes › Chapter CHAPTER 1— NORMAL TAXES AND SURTAXES › Subchapter Subchapter C— Corporate Distributions and Adjustments › Part PART II— CORPORATE LIQUIDATIONS › Subpart Subpart B— Effects on Corporation

26 U.S.C. § 337

Nonrecognition for property distributed to parent in complete liquidation of subsidiary

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(a) In general

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.

(b) Treatment of indebtedness of subsidiary, etc.(1) Indebtedness of subsidiary to parentIf—(A) a corporation is liquidated in a liquidation to which section 332 applies, and(B) on the date of the adoption of the plan of liquidation, such corporation was indebted to the 80-percent distributee,for purposes of this section and section 336, any transfer of property to the 80-percent distributee in satisfaction of such indebtedness shall be treated as a distribution to such distributee in such liquidation.(2) Treatment of tax-exempt distributee(A) In general

Except as provided in subparagraph (B), paragraph (1) and subsection (a) shall not apply where the 80-percent distributee is an organization (other than a cooperative described in section 521) which is exempt from the tax imposed by this chapter.

(B) Exception where property will be used in unrelated business(i) In general

Subparagraph (A) shall not apply to any distribution of property to an organization described in section 511(a)(2) if, immediately after such distribution, such organization uses such property in an activity the income from which is subject to tax under section 511(a).

(ii) Later disposition or change in use

If any property to which clause (i) applied is disposed of by the organization acquiring such property, notwithstanding any other provision of law, any gain (not in excess of the amount not recognized by reason of clause (i)) shall be included in such organization’s unrelated business taxable income. For purposes of the preceding sentence, if such property ceases to be used in an activity referred to in clause (i), such organization shall be treated as having disposed of such property on the date of such cessation.

(c) 80-percent distributee

For purposes of this section, the term “80-percent distributee” means only the corporation which meets the 80-percent stock ownership requirements specified in section 332(b). For purposes of this section, the determination of whether any corporation is an 80-percent distributee shall be made without regard to any consolidated return regulation.

(d) RegulationsThe Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of the amendments made by subtitle D of title VI of the Tax Reform Act of 1986, including—(1) regulations to ensure that such purposes may not be circumvented through the use of any provision of law or regulations (including the consolidated return regulations and part III of this subchapter) or through the use of a regulated investment company, real estate investment trust, or tax-exempt entity, and(2) regulations providing for appropriate coordination of the provisions of this section with the provisions of this title relating to taxation of foreign corporations and their shareholders.(Added Pub. L. 99–514, title VI, § 631(a), Oct. 22, 1986, 100 Stat. 2271; amended Pub. L. 100–203, title X, § 10223(a), Dec. 22, 1987, 101 Stat. 1330–411; Pub. L. 100–647, title I, § 1006(e)(4), (5)(A), Nov. 10, 1988, 102 Stat. 3400.)Editorial NotesReferences in Text

The Tax Reform Act of 1986, referred to in subsec. (d), is Pub. L. 99–514, Oct. 22, 1986, 100 Stat. 2085. Subtitle D (§§ 631–634) of title VI of the Tax Reform Act of 1986 enacted sections 336 and 337 of this title, amended sections 26, 311, 312, 332, 334, 338, 341, 346, 367, 453, 453B, 467, 852, 897, 1056, 1248, 1255, 1276, 1363, 1366, 1374, and 1375 of this title, and repealed former sections 333, 336, and 337 of this title. For complete classification of this Act to the Code, see Tables.

Prior Provisions

A prior section 337, acts Aug. 16, 1954, ch. 736, 68A Stat. 106; Sept. 2, 1958, Pub. L. 85–866, title I, § 19, 72 Stat. 1615; Oct. 4, 1976, Pub. L. 94–455, title XIX, §§ 1901(a)(46), 1906(b)(13)(A), title XXI, § 2118(a), 90 Stat. 1772, 1834, 1912; Nov. 6, 1978, Pub. L. 95–600, title VII, § 701(i)(1), 92 Stat. 2904; Nov. 10, 1978, Pub. L. 95–628, § 4(a), 92 Stat. 3628; Apr. 2, 1980, Pub. L. 96–223, title IV, § 403(b)(2)(A), 94 Stat. 304; Oct. 19, 1980, Pub. L. 96–471, § 2(c)(2), 94 Stat. 2254; Dec. 24, 1980, Pub. L. 96–589, § 5(c), 94 Stat. 3405; Sept. 3, 1982, Pub. L. 97–248, title II, § 224(c)(5), (6), 96 Stat. 489; Oct. 22, 1986, Pub. L. 99–514, title XVIII, § 1804(e)(7)(A), 100 Stat. 2803, related to gain or loss on sales or exchanges in connection with certain liquidations, prior to repeal by Pub. L. 99–514, § 631(a).

Amendments

1988—Subsec. (b)(2)(B)(i). Pub. L. 100–647, § 1006(e)(4)(A), (B), substituted “described in section 511(a)(2)” for “described in section 511(a)(2) or 511(b)(2)” and “in an activity the income from which is subject to tax under section 511(a)” for “in an unrelated trade or business (as defined in section 513)”.

Subsec. (b)(2)(B)(ii). Pub. L. 100–647, § 1006(e)(4)(C), substituted “an activity referred to in clause (i)” for “an unrelated trade or business of such organization”.

Subsec. (d). Pub. L. 100–647, § 1006(e)(5)(A), in introductory provisions, substituted “amendments made by subtitle D of title VI of the Tax Reform Act of 1986” for “amendments made to this subpart by the Tax Reform Act of 1986”, and in par. (1), substituted “this subchapter) or through the use of a regulated investment company, real estate investment trust, or tax-exempt entity” for “this subchapter)”.

1987—Subsec. (c). Pub. L. 100–203 inserted at end “For purposes of this section, the determination of whether any corporation is an 80-percent distributee shall be made without regard to any consolidated return regulation.”

Statutory Notes and Related SubsidiariesEffective Date of 1988 Amendment

Pub. L. 100–647, title I, § 1006(e)(5)(B), Nov. 10, 1988, 102 Stat. 3401, provided that: “The amendment made by subparagraph (A)(ii) [amending this section] shall not apply to any reorganization if before June 10, 1987—“(i) the board of directors of a party to the reorganization adopted a resolution to solicit shareholder approval for the transaction, or“(ii) the shareholders or the board of directors of a party to the reorganization approved the transaction.”

Amendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title.

Effective Date of 1987 Amendment

Amendment by Pub. L. 100–203 applicable to distributions or transfers after Dec. 15, 1987, with exceptions for certain distributee corporations and distributions covered by prior transition rule, see section 10223(d) of Pub. L. 100–203, set out as a note under section 304 of this title.

Effective Date

Section 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 a note under section 336 of this title.

Notes of Decisions
Cited in 85 cases, 1953–2009 · leading case: Cent. Tablet Mfg. Co. v. United States, 417 U.S. 673 (1974).
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Cent. Tablet Mfg. Co. v. United States, 417 U.S. 673 (1974). · cites it 6× “Section 337 (a) of the Internal Revenue Code of 1954, 26 U. S. C. § 337 (a), [1] provides, with stated exceptions, for the nonrecognition of gain or loss from a corporation's "sale or exchange" of property that takes place during the 12-month period following the corporation's…”
Schulz, Davis & Warren v. Marinkovich, 661 P.2d 5 (Mont. 1983). · cites it 6× “( 26 U.S.C. § 337 .) The plan of liquidation adopted provided that ".”
Sanderling, Inc. v. Comm'r of Internal Revenue, 571 F.2d 174 (3rd Cir. 1978). “§ 337, 26 U.S.C. § 337 . As part of the arrangement, William A.”
West Seattle Nat'l Bank of Seattle v. Comm'r of Internal Revenue, 288 F.2d 47 (9th Cir. 1961). · cites it 2× “This ease presents the question whether upon a sale of corporate assets pursuant to a plan of complete liquidation with the accounts receivable being sold at face value, the taxpayer’s reserve for bad debts constitutes ordinary income and is taxable as such or constitutes gain…”
Irene Eisenberg v. Comm'r of Internal Revenue, 155 F.3d 50 (2d Cir. 1998). “26 U.S.C. § 337 (a) (1958).(a)(b) 11 . In addition to several explicit statutory exceptions, Congress created more and more exceptions to the general rule of non-recognition, especially with respect to gains on non-liquidating distributions of appreciated property.”
Midland-Ross Corp., Transferee of Surface Combustion Corp. v. United States, 485 F.2d 110 (6th Cir. 1973). · cites it 3× “The Government’s answer asserted, inter alia, an affirmative defense of set off in the form of a tax liability on Surface’s gross profits for work in process of $1,344,191, for which profits Midland claimed nonrecognition under 26 U.S.C. § 337 . 1 Prior to trial, the Government…”
Towanda Textiles, Inc. v. United States, 180 F. Supp. 373 (Ct. Cl. 1960). · cites it 2× “The first question presented is whether the gain derived therefrom comes within the provisions of section 337 of the Internal Revenue Code of 1954, 26 U.S.C.A. § 337 , which reads: "Gain or loss on sales or exchanges in connection with certain liquidations "(a) General rule.”
Ex Parte Jones Mfg. Co., Inc., 589 So. 2d 208 (Ala. 1991). “"), 26 U.S.C. § 337 , reads, in pertinent part: "(a) General Rule.”
Montelepre Systemed, Inc. v. Comm'r of Internal Revenue, 956 F.2d 496 (5th Cir. 1992). · cites it 2× “We hold that Systemed’s right was subject to a substantial risk of forfeiture until Systemed disposed of that right, and that the assignment-of-income doctrine precludes application of 26 U.S.C. § 337 to the payment that Systemed received.”
Tennessee-Carolina Transp., Inc. v. Comm'r of Internal Revenue, 582 F.2d 378 (6th Cir. 1978). “See cases cited supra. Underlying the fictional recovery applied both by the majority of this panel and by the majority of the Tax Court, there is a reliance on two cases which have held the tax benefit rule applicable to liquidations under 26 U.”
Citizens' Acceptance Corp., a Dissolved Corp. Continued by Statute for Purposes of Suit v. United States, 462 F.2d 751 (3rd Cir. 1972). · cites it 2× “” 26 U.S.C. § 337 (a). 3 Thus, when Citizens *754 filed its federal income tax return for the year ending March 31, 1964, it reported a non-recognizable gain of $270,-849.”
United States v. Westley, 7 F. App'x 393 (6th Cir. 2001). “See 26 U.S.C. § 337 . This tax-saving effort was unrelated to the assessed tax deficiencies resulting from Supreme Inc.”
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