§304 — Redemption through use of related corporations
69 citing cases
Statute Text — 26 U.S.C. §304
For purposes of sections 302 and 303, if—
one or more persons are in control of each of two corporations, and
in return for property, one of the corporations acquires stock in the other corporation from the person (or persons) so in control,
then (unless paragraph (2) applies) such property shall be treated as a distribution in redemption of the stock of the corporation acquiring such stock. To the extent that such distribution is treated as a distribution to which section 301 applies, the transferor and the acquiring corporation shall be treated in the same manner as if the transferor had transferred the stock so acquired to the acquiring corporation in exchange for stock of the acquiring corporation in a transaction to which section 351(a) applies, and then the acquiring corporation had redeemed the stock it was treated as issuing in such transaction.
For purposes of sections 302 and 303, if—
in return for property, one corporation acquires from a shareholder of another corporation stock in such other corporation, and
the issuing corporation controls the acquiring corporation,
then such property shall be treated as a distribution in redemption of the stock of the issuing corporation.
In the case of any acquisition of stock to which subsection (a) of this section applies, determinations as to whether the acquisition is, by reason of section 302(b), to be treated as a distribution in part or full payment in exchange for the stock shall be made by reference to the stock of the issuing corporation. In applying section 318(a) (relating to constructive ownership of stock) with respect to section 302(b) for purposes of this paragraph, sections 318(a)(2)(C) and 318(a)(3)(C) shall be applied without regard to the 50 percent limitation contained therein.
In the case of any acquisition of stock to which subsection (a) applies, the determination of the amount which is a dividend (and the source thereof) shall be made as if the property were distributed—
by the acquiring corporation to the extent of its earnings and profits, and
then by the issuing corporation to the extent of its earnings and profits.
Except as otherwise provided in this paragraph, subsection (a) (and not section 351 and not so much of sections 357 and 358 as relates to section 351) shall apply to any property received in a distribution described in subsection (a).
In the case of an acquisition described in section 351, subsection (a) shall not apply to any liability—
assumed by the acquiring corporation, or
to which the stock is subject,
For purposes of clause (i), an extension, renewal, or refinancing of a liability which meets the requirements of clause (i) shall be treated as meeting such requirements.
Clause (i) shall apply only to stock acquired by the transferor from a person—
none of whose stock is attributable to the transferor under section 318(a) (other than paragraph (4) thereof), or
who satisfies rules similar to the rules of section 302(c)(2) with respect to both the acquiring and the issuing corporations (determined as if such person were a distributee of each such corporation).
if such liability was incurred by the transferor to acquire the stock. For purposes of the preceding sentence, the term “stock” means stock referred to in paragraph (1)(B) or (2)(A) of subsection (a).
If—
pursuant to a plan, control of a bank is acquired and within 2 years after the date on which such control is acquired, stock constituting control of such bank is transferred to a BHC in connection with its formation,
incident to the formation of the BHC there is a distribution of property described in subsection (a), and
the shareholders of the BHC who receive distributions of such property do not have control of such BHC,
then, subsection (a) shall not apply to any securities received by a qualified minority shareholder incident to the formation of such BHC. For purposes of this subparagraph, any assumption of (or acquisition of stock subject to) a liability under subparagraph (B) shall not be treated as a distribution of property.
For purposes of subparagraph (C) and this subparagraph—
The term “qualified minority shareholder” means any shareholder who owns less than 10 percent (in value) of the stock of the BHC. For purposes of the preceding sentence, the rules of paragraph (3) of subsection (c) shall apply.
The term “BHC” means a bank holding company (within the meaning of section 2(a) of the Bank Holding Company Act of 1956).
In the case of any transfer described in subsection (a) of stock from 1 member of an affiliated group to another member of such group, proper adjustments shall be made to—
the adjusted basis of any intragroup stock, and
the earnings and profits of any member of such group,
to the extent necessary to carry out the purposes of this section.
For purposes of this paragraph—
The term “affiliated group” has the meaning given such term by section 1504(a).
The term “intragroup stock” means any stock which—
is in a corporation which is a member of an affiliated group, and
is held by another member of such group.
In the case of any acquisition to which subsection (a) applies in which the acquiring corporation is a foreign corporation, the only earnings and profits taken into account under paragraph (2)(A) shall be those earnings and profits—
which are attributable (under regulations prescribed by the Secretary) to stock of the acquiring corporation owned (within the meaning of section 958(a)) by a corporation or individual which is—
a United States shareholder (within the meaning of section 951(b)) of the acquiring corporation, and
the transferor or a person who bears a relationship to the transferor described in section 267(b) or 707(b), and
which were accumulated during the period or periods such stock was owned by such person while the acquiring corporation was a controlled foreign corporation.
In the case of any acquisition to which subsection (a) applies in which the acquiring corporation is a foreign corporation, no earnings and profits shall be taken into account under paragraph (2)(A) (and subparagraph (A) shall not apply) if more than 50 percent of the dividends arising from such acquisition (determined without regard to this subparagraph) would neither—
be subject to tax under this chapter for the taxable year in which the dividends arise, nor
be includible in the earnings and profits of a controlled foreign corporation (as defined in section 957 and without regard to section 953(c)).
The Secretary shall prescribe such regulations as are appropriate to carry out the purposes of this paragraph.
In the case of any acquisition to which subsection (a) applies in which the acquiring corporation or the issuing corporation is a foreign corporation, the Secretary shall prescribe such regulations as are appropriate in order to eliminate a multiple inclusion of any item in income by reason of this subpart and to provide appropriate basis adjustments (including modifications to the application of sections 959 and 961).
For purposes of this section, control means the ownership of stock possessing at least 50 percent of the total combined voting power of all classes of stock entitled to vote, or at least 50 percent of the total value of shares of all classes of stock. If a person (or persons) is in control (within the meaning of the preceding sentence) of a corporation which in turn owns at least 50 percent of the total combined voting power of all stock entitled to vote of another corporation, or owns at least 50 percent of the total value of the shares of all classes of stock of another corporation, then such person (or persons) shall be treated as in control of such other corporation.
For purposes of subsection (a)(1)—
Where 1 or more persons in control of the issuing corporation transfer stock of such corporation in exchange for stock of the acquiring corporation, the stock of the acquiring corporation received shall be taken into account in determining whether such person or persons are in control of the acquiring corporation.
Where 2 or more persons in control of the issuing corporation transfer stock of such corporation to the acquiring corporation and, after the transfer, the transferors are in control of the acquiring corporation, the person or persons in control of each corporation shall include each of the persons who so transfer stock.
Section 318(a) (relating to constructive ownership of stock) shall apply for purposes of determining control under this section.
For purposes of subparagraph (A)—
paragraph (2)(C) of section 318(a) shall be applied by substituting “5 percent” for “50 percent”, and
paragraph (3)(C) of section 318(a) shall be applied—
by substituting “5 percent” for “50 percent”, and
in any case where such paragraph would not apply but for subclause (I), by considering a corporation as owning the stock (other than stock in such corporation) owned by or for any shareholder of such corporation in that proportion which the value of the stock which such shareholder owned in such corporation bears to the value of all stock in such corporation.
Treasury Regulations
-
Treas. Reg. §1.304-1General
(a) Except as provided in paragraph (b) of this section, section 304 is applicable where a shareholder sells stock of one corporation to a related corporation as defined in section 304. Sales to which section 304 is applicable shall be treated as redemptions subject to sections 302 and 303.
(b) In the case of—
(1) Any acquisition of stock described in section 304 which occurred before June 22, 1954, and
(2) Any acquisition of stock described in section 304 which occurred on or after June 22, 1954, and on or before December 31, 1958, pursuant to a contract entered into before June 22, 1954.
The extent to which the property received in return for such acquisition shall be treated as a dividend shall be determined as if the Internal Revenue Code of 1939 continued to apply in respect of such acquisition and as if the Internal Revenue Code of 1954 had not been enacted. See section 391. In cases to which this paragraph applies, the basis of the stock received by the acquiring corporation shall be determined as if the Internal Revenue Code of 1939 continued to apply in respect of such acquisition and as if the Internal Revenue Code of 1954 had not been enacted.
-
Treas. Reg. §1.304-1(a)Except as provided in paragraph (b) of this section, section 304 is applicable where a shareholder sells stock of one corporation to a related corporation as defined in section 304.
Except as provided in paragraph (b) of this section, section 304 is applicable where a shareholder sells stock of one corporation to a related corporation as defined in section 304. Sales to which section 304 is applicable shall be treated as redemptions subject to sections 302 and 303.
-
Treas. Reg. §1.304-1(b)§1.304-1(b)
In the case of—
(1) Any acquisition of stock described in section 304 which occurred before June 22, 1954, and
(2) Any acquisition of stock described in section 304 which occurred on or after June 22, 1954, and on or before December 31, 1958, pursuant to a contract entered into before June 22, 1954.
The extent to which the property received in return for such acquisition shall be treated as a dividend shall be determined as if the Internal Revenue Code of 1939 continued to apply in respect of such acquisition and as if the Internal Revenue Code of 1954 had not been enacted. See section 391. In cases to which this paragraph applies, the basis of the stock received by the acquiring corporation shall be determined as if the Internal Revenue Code of 1939 continued to apply in respect of such acquisition and as if the Internal Revenue Code of 1954 had not been enacted.
-
Treas. Reg. §1.304-2Acquisition by related corporation (other than subsidiary)
(a) If a corporation, in return for property, acquires stock of another corporation from one or more persons, and the person or persons from whom the stock was acquired were in control of both such corporations before the acquisition, then such property shall be treated as received in redemption of stock of the acquiring corporation. The stock received by the acquiring corporation shall be treated as a contribution to the capital of such corporation. See section 362(a) for determination of the basis of such stock. The transferor's basis for his stock in the acquiring corporation shall be increased by the basis of the stock surrendered by him. (But see below in this paragraph for subsequent reductions of basis in certain cases.) As to each person transferring stock, the amount received shall be treated as a distribution of property under section 302(d), unless as to such person such amount is to be treated as received in exchange for the stock under the terms of section 302(a) or section 303. In applying section 302(b), reference shall be had to the shareholder's ownership of stock in the issuing corporation and not to his ownership of stock in the acquiring corporation (except for purposes of applying section 318(a)). In determining control and applying section 302(b), section 318(a) (relating to the constructive ownership of stock) shall be applied without regard to the 50-percent limitation contained in section 318(a)(2)(C) and (3)(C). A series of redemptions referred to in section 302(b)(2)(D) shall include acquisitions by either of the corporations of stock of the other and stock redemptions by both corporations. If section 302(d) applies to the surrender of stock by a shareholder, his basis for his stock in the acquiring corporation after the transaction (increased as stated above in this paragraph) shall not be decreased except as provided in section 301. If section 302(d) does not apply, the property received shall be treated as received in a distribution in payment in exchange for stock of the acquiring corporation under section 302(a), which stock has a basis equal to the amount by which the shareholder's basis for his stock in the acquiring corporation was increased on account of the contribution to capital as provided for above in this paragraph. Accordingly, such amount shall be applied in reduction of the shareholder's basis for his stock in the acquiring corporation. Thus, the basis of each share of the shareholder's stock in the acquiring corporation will be the same as the basis of such share before the entire transaction. The holding period of the stock which is considered to have been redeemed shall be the same as the holding period of the stock actually surrendered.
(b) In any case in which two or more persons, in the aggregate, control two corporations, section 304(a)(1) will apply to sales by such persons of stock in either corporation to the other (whether or not made simultaneously) provided the sales by each of such persons are related to each other. The determination of whether the sales are related to each other shall be dependent upon the facts and circumstances surrounding all of the sales. For this purpose, the fact that the sales may occur during a period of one or more years (such as in the case of a series of sales by persons who together control each of such corporations immediately prior to the first of such sales and immediately subsequent to the last of such sales) shall be disregarded, provided the other facts and circumstances indicate related transactions.
(c) The application of section 304(a)(1) may be illustrated by the following examples:
-
Treas. Reg. §1.304-2(a)If a corporation, in return for property, acquires stock of another corporation from one or more persons, and the person or persons from whom the stock was acquired were in control of both such corporations before the acquisition, then such property shall be treated as received in redemption of stock of the acquiring corporation.
If a corporation, in return for property, acquires stock of another corporation from one or more persons, and the person or persons from whom the stock was acquired were in control of both such corporations before the acquisition, then such property shall be treated as received in redemption of stock of the acquiring corporation. The stock received by the acquiring corporation shall be treated as a contribution to the capital of such corporation. See section 362(a) for determination of the basis of such stock. The transferor's basis for his stock in the acquiring corporation shall be increased by the basis of the stock surrendered by him. (But see below in this paragraph for subsequent reductions of basis in certain cases.) As to each person transferring stock, the amount received shall be treated as a distribution of property under section 302(d), unless as to such person such amount is to be treated as received in exchange for the stock under the terms of section 302(a) or section 303. In applying section 302(b), reference shall be had to the shareholder's ownership of stock in the issuing corporation and not to his ownership of stock in the acquiring corporation (except for purposes of applying section 318(a)). In determining control and applying section 302(b), section 318(a) (relating to the constructive ownership of stock) shall be applied without regard to the 50-percent limitation contained in section 318(a)(2)(C) and (3)(C). A series of redemptions referred to in section 302(b)(2)(D) shall include acquisitions by either of the corporations of stock of the other and stock redemptions by both corporations. If section 302(d) applies to the surrender of stock by a shareholder, his basis for his stock in the acquiring corporation after the transaction (increased as stated above in this paragraph) shall not be decreased except as provided in section 301. If section 302(d) does not apply, the property received shall be treated as received in a distribution in payment in exchange for stock of the acquiring corporation under section 302(a), which stock has a basis equal to the amount by which the shareholder's basis for his stock in the acquiring corporation was increased on account of the contribution to capital as provided for above in this paragraph. Accordingly, such amount shall be applied in reduction of the shareholder's basis for his stock in the acquiring corporation. Thus, the basis of each share of the shareholder's stock in the acquiring corporation will be the same as the basis of such share before the entire transaction. The holding period of the stock which is considered to have been redeemed shall be the same as the holding period of the stock actually surrendered.
-
Treas. Reg. §1.304-2(b)In any case in which two or more persons, in the aggregate, control two corporations, section 304(a)(1) will apply to sales by such persons of stock in either corporation to the other (whether or not made simultaneously) provided the sales by each of such persons are related to each other.
In any case in which two or more persons, in the aggregate, control two corporations, section 304(a)(1) will apply to sales by such persons of stock in either corporation to the other (whether or not made simultaneously) provided the sales by each of such persons are related to each other. The determination of whether the sales are related to each other shall be dependent upon the facts and circumstances surrounding all of the sales. For this purpose, the fact that the sales may occur during a period of one or more years (such as in the case of a series of sales by persons who together control each of such corporations immediately prior to the first of such sales and immediately subsequent to the last of such sales) shall be disregarded, provided the other facts and circumstances indicate related transactions.
-
Treas. Reg. §1.304-2(c)§1.304-2(c)
The application of section 304(a)(1) may be illustrated by the following examples:
-
Treas. Reg. §1.304-3Acquisition by a subsidiary
(a) If a subsidiary acquires stock of its parent corporation from a shareholder of the parent corporation, the acquisition of such stock shall be treated as though the parent corporation had redeemed its own stock. For the purpose of this section, a corporation is a parent corporation if it meets the 50 percent ownership requirements of section 304(c). The determination whether the amount received shall be treated as an amount received in payment in exchange for the stock shall be made by applying section 303, or by applying section 302(b) with reference to the stock of the issuing parent corporation. If such distribution would have been treated as a distribution of property (pursuant to section 302(d)) under section 301, the entire amount of the selling price of the stock shall be treated as a dividend to the seller to the extent of the earnings and profits of the parent corporation determined as if the distribution had been made to it of the property that the subsidiary exchanged for the stock. In such cases, the transferor's basis for his remaining stock in the parent corporation will be determined by including the amount of the basis of the stock of the parent corporation sold to the subsidiary.
(b) Section 304(a)(2) may be illustrated by the following example:
-
Treas. Reg. §1.304-3(a)If a subsidiary acquires stock of its parent corporation from a shareholder of the parent corporation, the acquisition of such stock shall be treated as though the parent corporation had redeemed its own stock.
If a subsidiary acquires stock of its parent corporation from a shareholder of the parent corporation, the acquisition of such stock shall be treated as though the parent corporation had redeemed its own stock. For the purpose of this section, a corporation is a parent corporation if it meets the 50 percent ownership requirements of section 304(c). The determination whether the amount received shall be treated as an amount received in payment in exchange for the stock shall be made by applying section 303, or by applying section 302(b) with reference to the stock of the issuing parent corporation. If such distribution would have been treated as a distribution of property (pursuant to section 302(d)) under section 301, the entire amount of the selling price of the stock shall be treated as a dividend to the seller to the extent of the earnings and profits of the parent corporation determined as if the distribution had been made to it of the property that the subsidiary exchanged for the stock. In such cases, the transferor's basis for his remaining stock in the parent corporation will be determined by including the amount of the basis of the stock of the parent corporation sold to the subsidiary.
-
Treas. Reg. §1.304-3(b)§1.304-3(b)
Section 304(a)(2) may be illustrated by the following example:
-
Treas. Reg. §1.304-4Special rules for the use of related corporations to avoid the application of section 304
(a) Scope and purpose. This section applies to determine the amount of a property distribution constituting a dividend (and the source thereof) under section 304(b)(2), for certain transactions involving controlled corporations. The purpose of this section is to prevent the avoidance of the application of section 304 to a controlled corporation.
(b) Amount and source of dividend. For purposes of determining the amount constituting a dividend (and source thereof) under section 304(b)(2), the following rules shall apply:
(1) Deemed acquiring corporation. A corporation (deemed acquiring corporation) shall be treated as acquiring for property the stock of a corporation (issuing corporation) acquired for property by another corporation (acquiring corporation) that is controlled by the deemed acquiring corporation, if a principal purpose for creating, organizing, or funding the acquiring corporation by any means (including through capital contributions or debt) is to avoid the application of section 304 to the deemed acquiring corporation. See paragraph (c) Example 1 of this section for an illustration of this paragraph.
(2) Deemed issuing corporation. The acquiring corporation shall be treated as acquiring for property the stock of a corporation (deemed issuing corporation) controlled by the issuing corporation if, in connection with the acquisition for property of stock of the issuing corporation by the acquiring corporation, the issuing corporation acquired stock of the deemed issuing corporation with a principal purpose of avoiding the application of section 304 to the deemed issuing corporation. See paragraph (c) Example 2 of this section for an illustration of this paragraph.
(c) Examples. The rules of this section are illustrated by the following examples:
(d) Effective/applicability date. This section applies to acquisitions of stock occurring on or after December 29, 2009.
-
Treas. Reg. §1.304-4(a)Scope and purpose.
Scope and purpose. This section applies to determine the amount of a property distribution constituting a dividend (and the source thereof) under section 304(b)(2), for certain transactions involving controlled corporations. The purpose of this section is to prevent the avoidance of the application of section 304 to a controlled corporation.
-
Treas. Reg. §1.304-4(b)Amount and source of dividend.
Amount and source of dividend. For purposes of determining the amount constituting a dividend (and source thereof) under section 304(b)(2), the following rules shall apply:
(1) Deemed acquiring corporation. A corporation (deemed acquiring corporation) shall be treated as acquiring for property the stock of a corporation (issuing corporation) acquired for property by another corporation (acquiring corporation) that is controlled by the deemed acquiring corporation, if a principal purpose for creating, organizing, or funding the acquiring corporation by any means (including through capital contributions or debt) is to avoid the application of section 304 to the deemed acquiring corporation. See paragraph (c) Example 1 of this section for an illustration of this paragraph.
(2) Deemed issuing corporation. The acquiring corporation shall be treated as acquiring for property the stock of a corporation (deemed issuing corporation) controlled by the issuing corporation if, in connection with the acquisition for property of stock of the issuing corporation by the acquiring corporation, the issuing corporation acquired stock of the deemed issuing corporation with a principal purpose of avoiding the application of section 304 to the deemed issuing corporation. See paragraph (c) Example 2 of this section for an illustration of this paragraph.
-
Treas. Reg. §1.304-4(c)Examples.
Examples. The rules of this section are illustrated by the following examples:
-
Treas. Reg. §1.304-4(d)Effective/applicability date.
Effective/applicability date. This section applies to acquisitions of stock occurring on or after December 29, 2009.
-
Treas. Reg. §1.304-5Control
(a) Control requirement in general. Section 304(c)(1) provides that, for purposes of section 304, control means the ownership of stock possessing at least 50 percent of the total combined voting power of all classes of stock entitled to vote or at least 50 percent of the total value of shares of all classes of stock. Section 304(c)(3) makes section 318(a) (relating to constructive ownership of stock), as modified by section 304(c)(3)(B), applicable to section 304 for purposes of determining control under section 304(c)(1).
(b) Effect of section 304(c)(2)(B)—(1) In general. In determining whether the control test with respect to both the issuing and acquiring corporations is satisfied, section 304(a)(1) considers only the person or persons that—
(i) Control the issuing corporation before the transaction;
(ii) Transfer issuing corporation stock to the acquiring corporation for property; and
(iii) Control the acquiring corporation thereafter.
(2) Application. Section 317 defines property to include money, securities, and any other property except stock (or stock rights) in the distributing corporation. However, section 304(c)(2)(B) provides a special rule to extend the relevant group of persons to be tested for control of both the issuing and acquiring corporations to include the person or persons that do not acquire property, but rather solely stock from the acquiring corporation in the transaction. Section 304(c)(2)(B) provides that if two or more persons in control of the issuing corporation transfer stock of such corporation to the acquiring corporation, and if the transferors are in control of the acquiring corporation after the transfer, the person or persons in control of each corporation include each of those transferors. Because the purpose of section 304(c)(2)(B) is to include in the relevant control group the person or persons that retain or acquire acquiring corporation stock in the transaction, only the person or persons transferring stock of the issuing corporation that retain or acquire any proprietary interest in the acquiring corporation are taken into account for purposes of applying section 304(c)(2)(B).
(3) Example. This section may be illustrated by the following example.
(c) Effective date. This section is effective on January 20, 1994.
-
Treas. Reg. §1.304-5(a)Control requirement in general.
Control requirement in general. Section 304(c)(1) provides that, for purposes of section 304, control means the ownership of stock possessing at least 50 percent of the total combined voting power of all classes of stock entitled to vote or at least 50 percent of the total value of shares of all classes of stock. Section 304(c)(3) makes section 318(a) (relating to constructive ownership of stock), as modified by section 304(c)(3)(B), applicable to section 304 for purposes of determining control under section 304(c)(1).
-
Treas. Reg. §1.304-5(b)Effect of section 304(c)(2)(B)—(1) In general.
Effect of section 304(c)(2)(B)—(1) In general. In determining whether the control test with respect to both the issuing and acquiring corporations is satisfied, section 304(a)(1) considers only the person or persons that—
-
Treas. Reg. §1.304-5(c)Effective date.
Effective date. This section is effective on January 20, 1994.
-
Treas. Reg. §1.304-5(i)§1.304-5(i)
Control the issuing corporation before the transaction;
(ii) Transfer issuing corporation stock to the acquiring corporation for property; and
(iii) Control the acquiring corporation thereafter.
(2) Application. Section 317 defines property to include money, securities, and any other property except stock (or stock rights) in the distributing corporation. However, section 304(c)(2)(B) provides a special rule to extend the relevant group of persons to be tested for control of both the issuing and acquiring corporations to include the person or persons that do not acquire property, but rather solely stock from the acquiring corporation in the transaction. Section 304(c)(2)(B) provides that if two or more persons in control of the issuing corporation transfer stock of such corporation to the acquiring corporation, and if the transferors are in control of the acquiring corporation after the transfer, the person or persons in control of each corporation include each of those transferors. Because the purpose of section 304(c)(2)(B) is to include in the relevant control group the person or persons that retain or acquire acquiring corporation stock in the transaction, only the person or persons transferring stock of the issuing corporation that retain or acquire any proprietary interest in the acquiring corporation are taken into account for purposes of applying section 304(c)(2)(B).
(3) Example. This section may be illustrated by the following example.
-
Treas. Reg. §1.304-7Certain acquisitions by foreign acquiring corporations
(a) Scope. This section provides rules regarding the application of section 304(b)(5)(B) to an acquisition of stock described in section 304 by an acquiring corporation that is foreign (foreign acquiring corporation). Paragraph (b) of this section provides the rule for determining which earnings and profits are taken into account for purposes of applying section 304(b)(5)(B). Paragraph (c) of this section provides rules addressing the use of a partnership, option (or similar interest), or other arrangement. Paragraph (d) of this section provides examples that illustrate the rules of this section. Paragraph (e) of this section provides the applicability date.
(b) Earnings and profits taken into account. For purposes of applying section 304(b)(5)(B), only the earnings and profits of the foreign acquiring corporation are taken into account in determining whether more than 50 percent of the dividends arising from the acquisition (determined without regard to section 304(b)(5)(B)) would neither be subject to tax under chapter 1 of subtitle A of the Internal Revenue Code for the taxable year in which the dividends arise (subject to tax) nor be includible in the earnings and profits of a controlled foreign corporation (includible by a controlled foreign corporation). For purposes of this section, a controlled foreign corporation has the meaning provided in section 957 and without regard to section 953(c), determined without applying subparagraphs (A), (B), and (C) of section 318(a)(3) so as to consider a United States person as owning stock which is owned by a person who is not a United States person.
(c) Use of a partnership, option (or similar interest), or other arrangement. If a partnership, option (or similar interest), or other arrangement, is used with a principal purpose of avoiding the application of this section (for example, to treat a transferor as a controlled foreign corporation), then the partnership, option (or similar interest), or other arrangement will be disregarded for purposes of applying this section.
(d) Examples. The following examples illustrate the rules of this section. For purposes of the examples, assume the following facts in addition to the facts stated in the examples:
(1) FA is a foreign corporation that is not a controlled foreign corporation;
(2) FA wholly owns DT, a domestic corporation;
(3) DT wholly owns FS1, a controlled foreign corporation; and
(4) No portion of a dividend from FS1 would be treated as from sources within the United States under section 861.
(e) Applicability date. This section applies to acquisitions that are completed on or after September 22, 2014.
-
Treas. Reg. §1.304-7(a)Scope.
Scope. This section provides rules regarding the application of section 304(b)(5)(B) to an acquisition of stock described in section 304 by an acquiring corporation that is foreign (foreign acquiring corporation). Paragraph (b) of this section provides the rule for determining which earnings and profits are taken into account for purposes of applying section 304(b)(5)(B). Paragraph (c) of this section provides rules addressing the use of a partnership, option (or similar interest), or other arrangement. Paragraph (d) of this section provides examples that illustrate the rules of this section. Paragraph (e) of this section provides the applicability date.
-
Treas. Reg. §1.304-7(b)Earnings and profits taken into account.
Earnings and profits taken into account. For purposes of applying section 304(b)(5)(B), only the earnings and profits of the foreign acquiring corporation are taken into account in determining whether more than 50 percent of the dividends arising from the acquisition (determined without regard to section 304(b)(5)(B)) would neither be subject to tax under chapter 1 of subtitle A of the Internal Revenue Code for the taxable year in which the dividends arise (subject to tax) nor be includible in the earnings and profits of a controlled foreign corporation (includible by a controlled foreign corporation). For purposes of this section, a controlled foreign corporation has the meaning provided in section 957 and without regard to section 953(c), determined without applying subparagraphs (A), (B), and (C) of section 318(a)(3) so as to consider a United States person as owning stock which is owned by a person who is not a United States person.
-
Treas. Reg. §1.304-7(c)Use of a partnership, option (or similar interest), or other arrangement.
Use of a partnership, option (or similar interest), or other arrangement. If a partnership, option (or similar interest), or other arrangement, is used with a principal purpose of avoiding the application of this section (for example, to treat a transferor as a controlled foreign corporation), then the partnership, option (or similar interest), or other arrangement will be disregarded for purposes of applying this section.
-
Treas. Reg. §1.304-7(d)Examples.
Examples. The following examples illustrate the rules of this section. For purposes of the examples, assume the following facts in addition to the facts stated in the examples:
(1) FA is a foreign corporation that is not a controlled foreign corporation;
(2) FA wholly owns DT, a domestic corporation;
(3) DT wholly owns FS1, a controlled foreign corporation; and
(4) No portion of a dividend from FS1 would be treated as from sources within the United States under section 861.
69 Citing Cases
at 831. Congress added the flush text in 1997 when it revised section 408(m)(3) to add subparagraph (B) to allow IRAs to invest in bullion. Statutory interpretation begins with the text of the statute, and we may consider legislative intent when the text is ambiguous. CRI-Leslie, LLC v. Commissioner, 147 T.C. 217, 224 (2016), af
tion has been introduced on multiple occasions "[t]o provide a taxpayerbill ofrights for small businesses", S. 949, 114th Cong. (2015), and to insert into sec. 6343 a set ofcriteria for determining business economic hardship, H.R. 4128, 114th Cong., sec. 304 (2015); H.R. 4368, 112th Cong., sec. 1 (2012). None ofthese bills, however, was enacted. - 40 - On the basis ofsection 301.7122-1(b)(4), Proced. & Admin. Regs., and the analysis provided in the preamble, the Court finds this regulation's tre
Applying section 304,' we held that the cross-chain sales qualified as redemptions in complete termination of the selling shareholder corporation's interest in the subsidiaries and must be taxed as distributions in exchange for stock.
Applying section 304, we held that the cross-chain sales qualified as redemptions in complete termination of the selling shareholder corporation’s interest in the subsidiaries and must be taxed as distributions in exchange for stock under section 302(a) and (b)(3) rather than as dividends under section 301.
nent part: The family members listed below must retain the lots for a period of five (5) years per the notarized and signed intrafamily trans- fer declaration of intent on file with planning and code enforce- ment and in accordance with article 26, section 304.1(9) and 4-103 (Bill 33-96) - 5 - Lot Name Relationship[3] Area 1 Megan O’Malley Granddaughter 2.00 acres 2 Thomas Galvin Stepson 2.09 acres 3 Dorothy O’Malley Galvin Self 2.43 acres 4 Patrick G.
- 24 - matter, increases in deficiency, and affirmative defenses, pleaded in the answer.” The difficulty for the Hursts is that we do distinguish between new matters and new theories--“we have held that for respondent to change the section of the Code on which he relies does not cause the assertion of the new theory to be new matter if the section relied on is consistent with the determination made in the deficiency notice relying on another section of the Code.” Barton v. Commissioner, T.C. Mem
Now the Commissioner urges us to rely on a different section of the Code — section 304 — to support his position on RHI.
The parties agree that the cross-chain sales qualified as section 304 redemptions that must be tested for dividend equivalency under section 302(b).
The principal issue to be decided is the proper application of section 304, which could in turn require application of sections 301 and 302, to the facts of this case.
The principal issue to be decided is the proper application of section 304, which could in turn require application of sections 301 and 302, to the facts of this case.
891. - 5 - In 1971, under Arizona State law, the Central Arizona Water Conservation District (CAP Water District) was formed as a special water conservation district responsible for operation and maintenance of CAP and for repayment to the Interior Department of construction costs that the Federal Government would incur for cons
from Kolonaki in 1989 and 1990 constituted loans or constructive dividends; whether a $100,000 home interest deduction claimed by - 3 - Georgiou in 1990 can be recharacterized as a business interest expense under section 163(a); whether ownership of JAI stock was transferred from Georgiou to Kolonaki during 1989 or 1990, creating a dividend under section 304; and whether Georgiou is liable for penalties under section 6662 for 1989 and 1990.
from Kolonaki in 1989 and 1990 constituted loans or constructive dividends; whether a $100,000 home interest deduction claimed by - 3 - Georgiou in 1990 can be recharacterized as a business interest expense under section 163(a); whether ownership of JAI stock was transferred from Georgiou to Kolonaki during 1989 or 1990, creating a dividend under section 304; and whether Georgiou is liable for penalties under section 6662 for 1989 and 1990.
from Kolonaki in 1989 and 1990 constituted loans or constructive dividends; whether a $100,000 home interest deduction claimed by - 3 - Georgiou in 1990 can be recharacterized as a business interest expense under section 163(a); whether ownership of JAI stock was transferred from Georgiou to Kolonaki during 1989 or 1990, creating a dividend under section 304; and whether Georgiou is liable for penalties under section 6662 for 1989 and 1990.