1.368 Statutory provisions; definitions relating to corporate reorganizations. 1.368-1 Purpose and scope of exception of reorganization exchanges. 1.368-2 Definition of terms. 1.368-3 Records to be kept and information to be filed with returns. INSOLVENCY REORGANIZATIONS 1.371 Statutory provisions; reorganization in certain receivership and bankruptcy proceedings. 1.371-1 Exchanges by corporations. 1.371-2 Exchanges by security holders. 1.372 Statutory provisions; basis in connection with certain receivership and bankruptcy proceedings. 1.372-1 Corporations. 1.373 Statutory provisions; loss not recognized in certain railroad reorganizations. 1.373-1 Nonrecognition of loss upon transfer of property of railroad corporation. 1.373-2 Property acquired by railroad corporation in a receivership or railroad reorganization proceeding. 1.373-3 Property acquired by electric railway corporation in corporate reorganization proceeding. 1.374 Statutory provisions; gain or loss not recognized in certain railroad reorgani zations. 1.374-1 Exchanges by insolvent railroad corporations. 1.374-2 Basis of property acquired after July 31, 1955, by railroad corporation in a receivership or railroad reorganization proceeding. Records to be kept and information to be filed. 1.374-3 CARRYOVERS 1.381(a) Statutory provisions; carryovers in certain corporate acquisitions; general rule. 1.381(a)-1 General rule relating to carryovers in certain corporate acquisitions. 1.381(b) Statutory provisions; carryovers in certain corporate acquisitions; operating rules. 1.381(b)-1 Operating rules applicable to carryovers in certain corporate acquisitions. 1 381 (c) (1) Statutory provisions; carryovers in certain corporate acquisitions; items of the distributor or transferor corporation; net operating loss carryovers. 1 381 (c) (1)−1 Net operating loss carryovers in certain corporate acquisitions. 1.381 (c) (1)−2 Net operating loss carryovers; two or more dates of distribution or transfer in the taxable year. 1.381 (c) (2) Statutory provisions; carryovers in certain corporate acquisitions; items of the distributor or transferor corporation; earnings and profits. 1.381(c) (2)−1 Earnings and profits. 1.381 (c) (3) Statutory provisions; carryovers in certain corporate acquisitions; items of the distributor or transferor corporation; capital loss carryover. 1.381 (c) (3)-1 Capital loss carryovers. 1.381 (c) (4) Statutory provisions; carryovers in certain corporate acquisitions; items of the distributor or transferor corporation; method of accounting. 1.381 (c) (4)−1 Method of accounting. 1.381 (c) (6) Statutory provisions; carryovers in certain corporate acquisitions; items of the distributor or transferor corporation; method of computing depreciation allowance. 1.381 (c) (6)-1 Depreciation method. 1.381 (c) (7) Statutory provisions; carryovers in certain corporate acquisitions; items of the distributor or transferor corporation; prepaid income. 1.381 (c) (8) Statutory provisions; carryovers in certain corporate acquisitions; items of the distributor or transferor corporation; installment method. 1.381 (c) (8)-1 Installment method. 1.381 (c) (9) Statutory provisions; carryovers in certain corporate acquisitions; items of the distributor or transferor corporation; amortization of bond discount or premium. 1.381(c) (9)-1 Amortization of bond discount or premium. Sec. 1.381 (c) (10) Statutory provisions; carryovers in certain corporate acquisitions; items of the distributor or transferor corporation; treatment of certain expenses deferred by the election of distributor or transferor corporation. 1.381(c) (10)-1 Deferred exploration and development expenditures. 1.381 (c) (11) Statutory provisions; carryovers in certain corporate acquisitions; items of the distributor or transferor corporation; contributions to pension plans, employees' annuity plans, and stock bonus and profit-sharing plans. 1.381 (c) (11)-1 Contributions to pension plans, employees' annuity plans, and stock bonus and profit-sharing plans. 1.381 (c) (12) Statutory provisions; carryovers in certain corporate acquisitions; items of the distributor or transferor corporation; recovery of bad debts, prior taxes, or delinquency amounts. 1.381 (c) (12)-1 Recovery of bad debts, prior taxes, or delinquency amounts. 1.381(c) (13) Statutory provisions; carryovers in certain corporate acquisitions; items of distributor or transferor corporation; involuntary conversions under section 1033. 1.381 (c) (13)-1 Involuntary conversions. 1.381(c) (14) Statutory provisions; carryovers in certain corporate acquisitions; items of the distributor or transferor corporation; dividend carryover to personal holding company. 1.381 (c) (14) −1 Dividend carryover to personal holding company. 1.381 (c) (15) Statutory provisions; carryovers in certain corporate acquisitions; items of the distributor or transferor corporation; indebtedness of certain personal holding companies. 1.381 (c) (15)−1 Indebtedness of certain personal holding companies. 1.381 (c) (16) Statutory provisions; carryovers in certain corporate acquisitions; items of the distributor or transferor corporation; certain obligations of distributor or transferor corporation. 1.381 (c) (16)-1 Obligations of distributor or transferor corporation. 1.381 (c) (17) Statutory provisions; carryovers in certain corporate acquisitions; items of the distributor or transferor corporation; deficiency dividend of personal holding company. 1.381 (c) (17)-1 Deficiency dividend of personal holding company. 1.381(c) (18) Statutory provisions; carryovers in certain corporate acquisitions; items of the distributor or transferor corporation; percentage depletion on extraction of ores or minerals from the waste or residue of prior mining. 1.381(c) (18)-1 Depletion on extraction of ores or minerals from the waste or residue of prior mining. 1.381(c) (19) Statutory provisions; carryovers in certain corporate acquisitions; items of the distributor or transferor corporation; charitable contributions in excess of prior years' limitation. 1.381(c) (19)-1 Charitable contribution carryovers in certain acquisitions. 1.381 (c) (20) Statutory provisions; carryovers in certain corporate acquisitions; items of the distributor or transferor corporation; carryover of unused pension trust deductions in certain cases. 1.381 (c) (21) Statutory provisions; carryovers in certain corporate acquisitions; items of the distributor or transferor corporation; pre-1954 adjustments resulting from change in method of accounting. 1.381(c) (21)-1 Pre-1954 adjustments resulting from change in method of accounting. 1.381 (c) (22) Statutory provisions; carryovers in certain corporate acquisitions: successor life insurance company. 1.381(c) (22)−1 Successor life insurance company. 1.381(d) Statutory provisions; carryovers in certain corporate acquisitions; operations loss carrybacks and carryovers of life insurance companies. 1.381(d)-1 Operations loss carryovers of life insurance companies. 1.382(a) Statutory provisions; special limitations on net operating loss carryovers: purchase of a corporation and change in its trade or business. 1.382(a)-1 Purchase of a corporation and change in its trade or business. 1.382 (b) Statutory provisions; special limitations on net operating loss carryovers: change of ownership as the result of a reorganization. 1.382(b)-1 Change of ownership as the result of a reorganization. 1.382(c) Statutory provisions; special limitations on net operating loss carryovers: definition of stock. 1.382(c)-1 Definition of stock. Sec. EFFECTIVE DATE OF SUBCHAPTER C, CHAPTER 1 OF THE CODE 1.391 Statutory provisions; effective date of part I, subchapter C, chapter 1 of the Code. 1.391-1 Effective date of part I of subchapter C. 1.392 Statutory provisions; effective date of part II, subchapter C, chapter 1 of the Code. 1.392-1 Effective date of part II of subchapter C. 1.393 Statutory provisions; effective dates of parts III and IV, subchapter C, chapter 1 of the Code. 1.393-1 Effective date of parts III and IV of subchapter C. 1.393-2 1.393-3 Special rule with respect to certain plans of reorganization arising in 1954. 1.394 Statutory provisions; effective date of part V, subchapter C, chapter 1 of the Code. 1.394-1 Effective date of part V of subchapter C. 1.395 Statutory provisions; special rules for application of subchapter C, chapter 1 of the Code. 1.395-1 Special rules for application of subchapter C. AUTHORITY: The provisions of this Part 1, §§ 1.301 to 1.400, issued under sec. 7805, 68A Stat. 917; 26 U.S.C. 7805, unless otherwise noted. SOURCE: The provisions of this Part 1, §§ 1.301 to 1.400, contained in Treasury Decision 6500, 25 F.R. 11607, Nov. 26, 1960; 25 F.R. 14021, Dec. 31, 1960, unless otherwise noted. CORPORATE DISTRIBUTIONS AND ADJUSTMENTS DISTRIBUTIONS BY CORPORATIONS § 1.301 Statutory provisions; distributions of property. SEC. 301. Distributions of property—(&) In general. Except as otherwise provided in this chapter, a distribution of property (as defined in section 317(a)) made by a corporation to a shareholder with respect to its stock shall be treated in the manner provided in subsection (c). (b) Amount distributed-(1) General rule. For purposes of this section, the amount of any distribution shall be (A) Noncorporate distributees. If the shareholder is not a corporation, the amount of money received, plus the fair market value of the other property received. (B) Corporate distributees. If the shareholder is a corporation, the amount of money received, plus whichever of the following is the lesser: (1) The fair market value of the other property received; or (ii) The adjusted basis (in the hands of the distributing corporation immediately before the distribution) of the other property received, increased in the amount of gain to the distributing corporation which is recognized under subsection (b) or (c) of section 311, under section 341 (f), or under section 1245 (a) or 1250 (a). (C) Certain corporate distributees of foreign corporation. Notwithstanding subparagraph (B), if the shareholder is a corporation and the distributing corporation is a foreign corporation, the amount taken into account with respect to property (other than money) shall be the fair market value of such property; except that if any deduction is allowable under section 245 with respect to such distribution, then the amount taken into account shall be the sum (determined under regulations prescribed by the Secretary or his delegate) of (1) The proportion of the adjusted basis of such property (or, if lower, its fair market value) properly attributable to gross income from sources within the United States, and (11) The proportion of the fair market value of such property properly attributable to gross income from sources without the United States. (2) Reduction for liabilities. The amount of any distribution determined under paragraph (1) shall be reduced (but not below zero) by (A) The amount of any liability of the corporation assumed by the shareholder in connection with the distribution, and (B) The amount of any liability to which the property received by the shareholder is subject immediately before, and immediately after, the distribution. (3) Determination of fair market value. For purposes of this section, fair market value shall be determined as of the date of the distribution. (c) Amount taxable. In the case of a distribution to which subsection (a) applies (1) Amount constituting dividend. That portion of the distribution which is a dividend (as defined in section 316) shall be included in gross income. (2) Amount applied against basis. That portion of the distribution which is not a dividend shall be applied against and reduce the adjusted basis of the stock. (3) Amount in excess of basis—(A) In general. Except as provided in subparagraph (B), that portion of the distribution which is not a dividend, to the extent that it exceeds the adjusted basis of the stock, shall be treated as gain from the sale or exchange of property. (B) Distributions out of increase in value accrued before March 1, 1913. That portion of the distribution which is not a dividend, to the extent that it exceeds the adjusted basis of the stock and to the exent that it is out of increase in value accrued before March 1, 1913, shall be exempt from tax. (d) Basis. The basis of property received in a distribution to which subsection (a) applies shall be distributees. (1) Noncorporate If the shareholder is not a corporation, the fair market value of such property. (2) Corporate distributees. If the shareholder is a corporation, whichever of the following is the lesser: (A) The fair market value of such property; or (B) The adjusted basis (in the hands of the distributing corporation immediately before the distribution) of such property, increased in the amount of gain to the distributing corporation which is recognized under subsection (b) or (c) of section 311, under section 341 (f), or under section 1245 (a) or 1250(a). (3) Certain corporate distributees of foreign corporation. In the case of property described in subparagraph (C) of subsection (b) (1), the basis shall be determined by substituting the amount determined under such subparagraph (C) for the amount described in paragraph (2) of this subsection. (e) Exception for certain distributions by personal service corporations. Any distribution made by a corporation, which was classified as a personal service corporation under the provisions of the Revenue Act of 1918 or the Revenue Act of 1921, out of its earnings or profits which were taxable in accordance with the provisions of section 218 of the Revenue Act of 1918 (40 Stat. 1070), or section 218 of the Revenue Act of 1921 (42 Stat. 245), shall be exempt from tax to the distributees. (1) Special rules. (1) For distributions in redemption of stock, see section 302. (2) For distributions in partial or complete liquidation, see part II (sec. 331 and following). (3) For distributions in corporate organizations and reorganizations, see part III (sec. 351 and following). (4) For partial exclusion from gross income of dividends received by individuals, see section 116. [Sec. 301 as amended by sec. 5 (a) and (b), Rev. Act 1962 (76 Stat. 977); sec. 13(f) (2), Rev. Act 1962 (76 Stat. 1035); sec. 231 (b) (2), Rev. Act 1964 (78 Stat. 105); Act of Aug. 22, 1964 (Pub. Law 88-484, 78 Stat. 597)] [T.D. 6500, 25 F.R. 11607, Nov. 26, 1960, as amended by T.D. 6752, 29 F.R. 12701, Sept. 9, 1964; T.D. 7084, 36 F.R. 266, Jan. 8, 1971] § 1.301-1 Rules applicable with respect to distributions of money and other property. (a) General. Section 301 provides the general rule for treatment of distributions on or after June 22, 1954, of property by a corporation to a shareholder with respect to its stock. The term "property" is defined in section 317 (a). Such distributions, except as otherwise provided in this chapter, shall be treated as provided in section 301 (c). Under section 301 (c), distributions may be included in gross income, applied against and reduce the adjusted basis of the stock, treated as gain from the sale or exchange of property, or (in the case of certain distributions out of increase in value accrued before March 1, 1913) may be exempt from tax. The amount of the distributions to which section 301 applies is determined in accordance with the provisions of section 301 (b). The basis of property received in a distribution to which section 301 applies is determined in accordance with the provisions of section 301 (d). Accordingly, except as otherwise provided in this chapter, a distribution on or after June 22, 1954, of property by a corporation to a shareholder with respect to its stock shall be included in gross income to the extent the amount distributed is considered a dividend under section 316. For examples of distributions treated otherwise, see sections 116, 301 (c) (2), 301 (c) (3) (B), 301 (e), 302 (b), 303, and 305. See also part II (relating to distributions in partial or complete liquidation), part III (relating to corporate organizations and reorganizations), and part IV (relating to insolvency reorganizations), subchapter C, chapter 1 of the Code. (b) Time of inclusion in gross income and of determination of fair market value. A distribution made by a corporation to its shareholders shall be inIcluded in the gross income of the distributees when the cash or other property is unqualifiedly made subject to their demands. However, if such distribution is a distribution other than in cash, the fair market value of the property shall be determined as of the date of distribution without regard to whether such date is the same as that on which the distribution is includible in gross income. For example, if a corporation distributes a taxable dividend in property (the adjusted basis of which exceeds its fair market value on December 31, 1955) on December 31, 1955, which is received by, or unqualifiedly made subject to the demand of, its shareholders on January 2, 1956, the amount to be included in the gross income of the shareholders will be the fair market value of such property on December 31, 1955, although such amount will not be includible in the gross income of the shareholders until January 2, 1956. (c) Application of section to shareholders. Section 301 is not applicable to an amount paid by a corporation to a shareholder unless the amount is paid to the shareholder in his capacity as such. (d) Distributions of property to corporate shareholders. If property (other than money and other than the obligations of the distributing corporation) is distributed in kind to a shareholder which is a corporation and the fair market value of such property is greater than the adjusted basis in the hands of the distributing corporation, only the adjusted basis of such property (determined immediately before the distribution and increased for any gain recognized to the distributing corporation under section 311 (b) and (c) and section 1245 (a) or 1250(a)) shall be taken into account under section 301(c). Thus, in such a case, the amount of such a dividend in kind under section 301(c)(1) may not exceed such adjusted basis. Similarly, in such cases where the distribution is not out of earnings and profits, the amount of the reduction in basis of the shareholder's stock and the amount of any gain resulting from such distribution are determined by reference to the adjusted basis of the property distributed. If the property distributed is money, the amount of the distribution shall be the the amount of such money. If the property distributed consists of the obligations of the distributing corporation, or stock of the distributing corporation treated as property under section 305(b), or rights to acquire such stock treated as property under section 305(b), the amount of such distribution shall be an amount equal to the fair market value of such obligations, stock, or rights. For special rules as to distributions by a foreign corporation of property (other than money, the obligations of the distributing corporation, stock of the distributing corporation treated as property under section 305(b), or rights to acquire such stock treated as property under section 305(b)) after December 31, 1962, to a shareholder which is a corporation, see section 301(b) (1) (C) and paragraph (n) of this section. (e) Adjusted basis. In determining the adjusted basis of property distributed in the hands of the distributing corporation immediately before the distribution for purposes of section 301 (b) (1) (B) (ii), (b)(1) (C) (i), and (d) (2) (B), the basis to be used shall be the basis for determining gain upon a sale or exchange. (f) Examples. The application of this section (except paragraph (n)) may be illustrated by the following examples: Example (1). On January 1, 1955, A, an individual owned all of the stock of Corporation M with an adjusted basis of $2,000. During 1955, A received distributions from Corporation M totaling $30,000, consisting of $10,000 in cash and listed securities having a basis in the hands of Corporation M and a fair market value on the date distributed of $20,000. Corporation M's taxable year is the calendar year. As of December 31, 1954, Corporation M had earnings and profits accumulated after February 28, 1913, in the amount of $26,000, and it had no earnings and profits and no deficit for 1955. Of the $30,000 received by A, $26,000 will be treated as an ordinary dividend; the remaining $4,000 will be applied against the adjusted basis of his stock; the $2,000 in excess of the adjusted basis of his stock will either be treated as gain from the sale or exchange of property (under section 301 (c) (3) (A)) or, if out of increase in value accrued before March 1, 1913, will (under section 301 (c) (3) (B)) be exempt from tax. If A subsequently sells his stock in Corporation M, the basis for determining gain or loss on the sale will be zero. Example (2). The facts are the same as in Example 1 with the exceptions that the shareholder of Corporation M is Corporation W and that the securities which were distributed had an adjusted basis to Corporation M of $15,000. The distribution received by Corporation W totals $25,000 consisting of $10,000 in cash and securities with an adjusted basis of $15,000. The total $25,000 will be treated as a dividend to Corporation W since the earnings and profits of Corporation M ($26,000) are in excess of the amount of the distribution. Example (3). Corporation X owns timber land which it acquired prior to March 1, 1913, at a cost of $50,000 with $5,000 allocated as the separate cost of the land. On March 1, 1913, this property had a fair market value of $150,000 of which $135,000 was attributable to the timber and $15,000 to the land. All of the timber was cut prior to 1955 and the full appreciation in the value thereof, $90,000 ($135,000-$45,000), realized through depletion allowances based on March 1, 1913, value. None of this surplus from realized appreciation had been distributed. In 1955, |