§306 — Dispositions of certain stock
18 cases·1 followed·3 distinguished·14 cited—6% support
Statute Text — 26 U.S.C. §306
If a shareholder sells or otherwise disposes of section 306 stock (as defined in subsection (c))—
If such disposition is not a redemption (within the meaning of section 317(b))—
The amount realized shall be treated as ordinary income. This subparagraph shall not apply to the extent that—
the amount realized, exceeds
such stock’s ratable share of the amount which would have been a dividend at the time of distribution if (in lieu of section 306 stock) the corporation had distributed money in an amount equal to the fair market value of the stock at the time of distribution.
Any excess of the amount realized over the sum of—
the amount treated under subparagraph (A) as ordinary income, plus
the adjusted basis of the stock,
shall be treated as gain from the sale of such stock.
No loss shall be recognized.
For purposes of section 1(h)(11) and such other provisions as the Secretary may specify, any amount treated as ordinary income under this paragraph shall be treated as a dividend received from the corporation.
If the disposition is a redemption, the amount realized shall be treated as a distribution of property to which section 301 applies.
Subsection (a) shall not apply—
If the disposition—
is not a redemption;
is not, directly or indirectly, to a person the ownership of whose stock would (under section 318(a)) be attributable to the shareholder; and
terminates the entire stock interest of the shareholder in the corporation (and for purposes of this clause, section 318(a) shall apply).
If the disposition is a redemption and paragraph (3) or (4) of section 302(b) applies.
If the section 306 stock is redeemed in a distribution in complete liquidation to which part II (sec. 331 and following) applies.
To the extent that, under any provision of this subtitle, gain or loss to the shareholder is not recognized with respect to the disposition of the section 306 stock.
If it is established to the satisfaction of the Secretary—
that the distribution, and the disposition or redemption, or
in the case of a prior or simultaneous disposition (or redemption) of the stock with respect to which the section 306 stock disposed of (or redeemed) was issued, that the disposition (or redemption) of the section 306 stock,
was not in pursuance of a plan having as one of its principal purposes the avoidance of Federal income tax.
For purposes of this subchapter, the term “section 306 stock” means stock which meets the requirements of subparagraph (A), (B), or (C) of this paragraph.
Stock (other than common stock issued with respect to common stock) which was distributed to the shareholder selling or otherwise disposing of such stock if, by reason of section 305(a), any part of such distribution was not includible in the gross income of the shareholder.
Stock which is not common stock and—
which was received, by the shareholder selling or otherwise disposing of such stock, in pursuance of a plan of reorganization (within the meaning of section 368(a)), or in a distribution or exchange to which section 355 (or so much of section 356 as relates to section 355) applied, and
with respect to the receipt of which gain or loss to the shareholder was to any extent not recognized by reason of part III, but only to the extent that either the effect of the transaction was substantially the same as the receipt of a stock dividend, or the stock was received in exchange for section 306 stock.
For purposes of this section, a receipt of stock to which the foregoing provisions of this subparagraph apply shall be treated as a distribution of stock.
Except as otherwise provided in subparagraph (B), stock the basis of which (in the hands of the shareholder selling or otherwise disposing of such stock) is determined by reference to the basis (in the hands of such shareholder or any other person) of section 306 stock.
For purposes of this section, the term “section 306 stock” does not include any stock no part of the distribution of which would have been a dividend at the time of the distribution if money had been distributed in lieu of the stock.
The term “section 306 stock” also includes any stock which is not common stock acquired in an exchange to which section 351 applied if receipt of money (in lieu of the stock) would have been treated as a dividend to any extent. Rules similar to the rules of section 304(b)(2) shall apply—
for purposes of the preceding sentence, and
for purposes of determining the application of this section to any subsequent disposition of stock which is section 306 stock by reason of an exchange described in the preceding sentence.
For purposes of paragraphs (1)(B)(ii) and (3), section 318(a) shall apply. For purposes of applying the preceding sentence to paragraph (3), the rules of section 304(c)(3)(B) shall apply.
For purposes of this section—
stock rights shall be treated as stock, and
stock acquired through the exercise of stock rights shall be treated as stock distributed at the time of the distribution of the stock rights, to the extent of the fair market value of such rights at the time of the distribution.
For purposes of subsection (c)—
if section 306 stock was issued with respect to common stock and later such section 306 stock is exchanged for common stock in the same corporation (whether or not such exchange is pursuant to a conversion privilege contained in the section 306 stock), then (except as provided in paragraph (2)) the common stock so received shall not be treated as section 306 stock; and
common stock with respect to which there is a privilege of converting into stock other than common stock (or into property), whether or not the conversion privilege is contained in such stock, shall not be treated as common stock.
The amount treated under subsection (a)(1)(A) as ordinary income shall, for purposes of part I of subchapter N (sec. 861 and following, relating to determination of sources of income), be treated as derived from the same source as would have been the source if money had been received from the corporation as a dividend at the time of the distribution of such stock. If under the preceding sentence such amount is determined to be derived from sources within the United States, such amount shall be considered to be fixed or determinable annual or periodical gains, profits, and income within the meaning of section 871(a) or section 881(a), as the case may be.
If a substantial change is made in the terms and conditions of any stock, then, for purposes of this section—
the fair market value of such stock shall be the fair market value at the time of the distribution or at the time of such change, whichever such value is higher;
such stock’s ratable share of the amount which would have been a dividend if money had been distributed in lieu of stock shall be determined as of the time of distribution or as of the time of such change, whichever such ratable share is higher; and
subsection (c)(2) shall not apply unless the stock meets the requirements of such subsection both at the time of such distribution and at the time of such change.
Treasury Regulations
- Treas. Reg. §Treas. Reg. §1.306-1 General
- Treas. Reg. §Treas. Reg. §1.306-1(a) Section 306 provides, in general, that the proceeds from the sale or redemption of certain stock (referred to as “section 306 stock”) shall be treated either as ordinary income or as a distribution of property to which section 301 applies.
- Treas. Reg. §Treas. Reg. §1.306-1(b) §1.306-1(b)
- Treas. Reg. §Treas. Reg. §1.306-1(c) The entire amount received by a shareholder from the redemption of section 306 stock shall be treated as a distribution of property under section 301.
- Treas. Reg. §Treas. Reg. §1.306-2 Exception
- Treas. Reg. §Treas. Reg. §1.306-2(a) §1.306-2(a)
- Treas. Reg. §Treas. Reg. §1.306-2(b) §1.306-2(b)
- Treas. Reg. §Treas. Reg. §1.306-3 Section 306 stock defined
- Treas. Reg. §Treas. Reg. §1.306-3(a) For the purpose of subchapter C, chapter 1 of the code, the term section 306 stock means stock which meets the requirements of section 306(c)(1).
- Treas. Reg. §Treas. Reg. §1.306-3(b) For the purpose of section 306, rights to acquire stock shall be treated as stock.
- Treas. Reg. §Treas. Reg. §1.306-3(c) Section 306(c)(1)(A) provides that section 306 stock is any stock (other than common issued with respect to common) distributed to the shareholder selling or otherwise disposing thereof if, under section 305(a) (relating to distributions of stock and stock rights) any part of the distribution was not included in the gross income of the distributee.
- Treas. Reg. §Treas. Reg. §1.306-3(d) Section 306(c)(1)(B) includes in the definition of section 306 stock any stock except common stock, which is received by a shareholder in connection with a reorganization under section 368 or in a distribution or exchange under section 355 (or so much of section 356 as relates to section 355) provided the effect of the transaction is substantially the same as the receipt of a stock dividend, or the stock is received in exchange for section 306 stock.
- Treas. Reg. §Treas. Reg. §1.306-3(e) Section 306(c)(1)(C) includes in the definition of section 306 stock any stock (except as provided in section 306(c)(1)(B)) the basis of which in the hands of the person disposing of such stock, is determined by reference to section 306 stock held by such shareholder or any other person.
- Treas. Reg. §Treas. Reg. §1.306-3(f) If section 306 stock which was distributed with respect to common stock is exchanged for common stock in the same corporation (whether or not such exchange is pursuant to a conversion privilege contained in section 306 stock), such common stock shall not be section 306 stock.
- Treas. Reg. §Treas. Reg. §1.306-3(g) §1.306-3(g)
- Treas. Reg. §Treas. Reg. §1.306-3(h) When section 306 stock is disposed of, the amount treated under section 306(a)(1)(A) as ordinary income, for the purposes of part I, subchapter N, chapter 1 of the Code, be treated as derived from the same source as would have been the source if money had been received from the corporation as a dividend at the time of the distribution of such stock.
- Treas. Reg. §Treas. Reg. §1.306-3(i) Section 306 shall be inapplicable to stock received before June 22, 1954, and to stock received on or after June 22, 1954, in transactions subject to the provisions of the Internal Revenue Code of 1939.
- Treas. Reg. §Treas. Reg. §1.306-4 Effective/applicability date
18 Citing Cases
(1) Imposed a moratorium that prohibited savings associations from leaving the FSLIC insurance fund and (2) imposed a final insurance premium on savings associations which left the FSLIC insurance fund after - 14 - the moratorium expired. See CEBA sec. 306(h), 101 Stat. 602, amended by Pub. L. 100-378, sec. 10, 102 Stat. 887, 889 (1988), current version at 12 U.S.C. sec. 1730(d)(1) (1994). The intent of CEBA was to recapitalize the depleted FSLIC. See Branch Banking & Trust Co. v. FDIC, 172 F.3
306.6651-1(c)(1), Proced. & Admin. Regs. - 37 - Willful neglect is defined as a conscious, intentional failure or reckless indifference. See United States v. Boyle, 469 U.S. 241, 245 (1985). We consider first whether petitioner's failure to file a tax return for 1992 was due to reasonable cause and not to willful neglect because of his claime