§331 — Gain or loss to shareholder in corporate liquidations
96 citing cases
Statute Text — 26 U.S.C. §331
Amounts received by a shareholder in a distribution in complete liquidation of a corporation shall be treated as in full payment in exchange for the stock.
Section 301 (relating to effects on shareholder of distributions of property) shall not apply to any distribution of property (other than a distribution referred to in paragraph (2)(B) of section 316(b)) in complete liquidation.
For general rule for determination of the amount of gain or loss recognized, see section 1001.
Treasury Regulations
-
Treas. Reg. §1.331-1Corporate liquidations
(a) In general. Section 331 contains rules governing the extent to which gain or loss is recognized to a shareholder receiving a distribution in complete or partial liquidation of a corporation. Under section 331(a)(1), it is provided that amounts distributed in complete liquidation of a corporation shall be treated as in full payment in exchange for the stock. Under section 331(a)(2), it is provided that amounts distributed in partial liquidation of a corporation shall be treated as in full or part payment in exchange for the stock. For this purpose, the term partial liquidation shall have the meaning ascribed in section 346. If section 331 is applicable to the distribution of property by a corporation, section 301 (relating to the effects on a shareholder of distributions of property) has no application other than to a distribution in complete liquidation to which section 316(b)(2)(B) applies. See paragraph (b)(2) of § 1.316-1.
(b) Gain or loss. The gain or loss to a shareholder from a distribution in partial or complete liquidation is to be determined under section 1001 by comparing the amount of the distribution with the cost or other basis of the stock. The gain or loss will be recognized to the extent provided in section 1002 and will be subject to the provisions of parts I, II, and III (section 1201 and following), subchapter P, chapter 1 of the Code.
(c) Recharacterization. A liquidation which is followed by a transfer to another corporation of all or part of the assets of the liquidating corporation or which is preceded by such a transfer may, however, have the effect of the distribution of a dividend or of a transaction in which no loss is recognized and gain is recognized only to the extent of “other property.” See sections 301 and 356.
(d) Reporting requirement—(1) General rule. Every significant holder that transfers stock to the issuing corporation in exchange for property from such corporation must include on or with such holder's return for the year of such exchange the statement described in paragraph (d)(2) of this section unless—
(i) The property is part of a distribution made pursuant to a corporate resolution reciting that the distribution is made in complete liquidation of the corporation; and
(ii) The issuing corporation is completely liquidated and dissolved within one year after the distribution.
(2) Statement. If required by paragraph (d)(1) of this section, a significant holder must include on or with such holder's return a statement entitled, “STATEMENT PURSUANT TO § 1.331-1(d) BY [INSERT NAME AND TAXPAYER IDENTIFICATION NUMBER (IF ANY) OF TAXPAYER], A SIGNIFICANT HOLDER OF THE STOCK OF [INSERT NAME AND EMPLOYER IDENTIFICATION NUMBER (IF ANY) OF ISSUING CORPORATION].” If a significant holder is a controlled foreign corporation (within the meaning of section 957), each United States shareholder (within the meaning of section 951(b)) with respect thereto must include this statement on or with its return. The statement must include—
(i) The fair market value and basis of the stock transferred by the significant holder to the issuing corporation; and
(ii) A description of the property received by the significant holder from the issuing corporation.
(3) Definitions. For purposes of this section:
(i) Significant holder means any person that, immediately before the exchange—
(A) Owned at least five percent (by vote or value) of the total outstanding stock of the issuing corporation if the stock owned by such person is publicly traded; or
(B) Owned at least one percent (by vote or value) of the total outstanding stock of the issuing corporation if the stock owned by such person is not publicly traded.
(ii) Publicly traded stock means stock that is listed on—
(A) A national securities exchange registered under section 6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f); or
(B) An interdealer quotation system sponsored by a national securities association registered under section 15A of the Securities Exchange Act of 1934 (15 U.S.C. 78o-3).
(iii) Issuing corporation means the corporation that issued the shares of stock, some or all of which were transferred by a significant holder to such corporation in the exchange described in paragraph (d)(1) of this section.
(4) Cross reference. See section 6043 of the Code for requirements relating to a return by a liquidating corporation.
(e) Example. The provisions of this section may be illustrated by the following example:
(f) Effective/applicability date. Paragraph (d) of this section applies to any taxable year beginning on or after May 30, 2006. However, taxpayers may apply paragraph (d) of this section to any original Federal income tax return (including any amended return filed on or before the due date (including extensions) of such original return) timely filed on or after May 30, 2006. For taxable years beginning before May 30, 2006, see § 1.331-1 as contained in 26 CFR part 1 in effect on April 1, 2006.
-
Treas. Reg. §1.331-1(a)In general.
In general. Section 331 contains rules governing the extent to which gain or loss is recognized to a shareholder receiving a distribution in complete or partial liquidation of a corporation. Under section 331(a)(1), it is provided that amounts distributed in complete liquidation of a corporation shall be treated as in full payment in exchange for the stock. Under section 331(a)(2), it is provided that amounts distributed in partial liquidation of a corporation shall be treated as in full or part payment in exchange for the stock. For this purpose, the term partial liquidation shall have the meaning ascribed in section 346. If section 331 is applicable to the distribution of property by a corporation, section 301 (relating to the effects on a shareholder of distributions of property) has no application other than to a distribution in complete liquidation to which section 316(b)(2)(B) applies. See paragraph (b)(2) of § 1.316-1.
-
Treas. Reg. §1.331-1(b)Gain or loss.
Gain or loss. The gain or loss to a shareholder from a distribution in partial or complete liquidation is to be determined under section 1001 by comparing the amount of the distribution with the cost or other basis of the stock. The gain or loss will be recognized to the extent provided in section 1002 and will be subject to the provisions of parts I, II, and III (section 1201 and following), subchapter P, chapter 1 of the Code.
-
Treas. Reg. §1.331-1(c)Recharacterization.
Recharacterization. A liquidation which is followed by a transfer to another corporation of all or part of the assets of the liquidating corporation or which is preceded by such a transfer may, however, have the effect of the distribution of a dividend or of a transaction in which no loss is recognized and gain is recognized only to the extent of “other property.” See sections 301 and 356.
-
Treas. Reg. §1.331-1(d)Reporting requirement—(1) General rule.
Reporting requirement—(1) General rule. Every significant holder that transfers stock to the issuing corporation in exchange for property from such corporation must include on or with such holder's return for the year of such exchange the statement described in paragraph (d)(2) of this section unless—
-
Treas. Reg. §1.331-1(e)Example.
Example. The provisions of this section may be illustrated by the following example:
-
Treas. Reg. §1.331-1(f)Effective/applicability date.
Effective/applicability date. Paragraph (d) of this section applies to any taxable year beginning on or after May 30, 2006. However, taxpayers may apply paragraph (d) of this section to any original Federal income tax return (including any amended return filed on or before the due date (including extensions) of such original return) timely filed on or after May 30, 2006. For taxable years beginning before May 30, 2006, see § 1.331-1 as contained in 26 CFR part 1 in effect on April 1, 2006.
-
Treas. Reg. §1.331-1(i)§1.331-1(i)
Significant holder means any person that, immediately before the exchange—
(A) Owned at least five percent (by vote or value) of the total outstanding stock of the issuing corporation if the stock owned by such person is publicly traded; or
(B) Owned at least one percent (by vote or value) of the total outstanding stock of the issuing corporation if the stock owned by such person is not publicly traded.
(ii) Publicly traded stock means stock that is listed on—
(A) A national securities exchange registered under section 6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f); or
(B) An interdealer quotation system sponsored by a national securities association registered under section 15A of the Securities Exchange Act of 1934 (15 U.S.C. 78o-3).
(iii) Issuing corporation means the corporation that issued the shares of stock, some or all of which were transferred by a significant holder to such corporation in the exchange described in paragraph (d)(1) of this section.
(4) Cross reference. See section 6043 of the Code for requirements relating to a return by a liquidating corporation.
96 Citing Cases
§ 331 for receiving in interstate commerce and causing the receipt in interstate commerce of a misbranded drug and delivering and proffering the misbranded drug for pay with the intent to defraud and mislead. 6 [*6] Ms. Stegman was a director and the majority shareholder for all the years Midwest Medical filed with the Kansas secretary of state. S
-5- there are grounds for removal ofa Tax Court Judge under section 7443(f), then the Judicial Conference shall transmit the determination to the President. See Part B, infra p. 22. B. Statutory Provisions Relating to the Establishment and Status ofthe Tax Court 1. 1924 to 1968 Congress created the Board ofTax Appeals in 1924 to p
Liquidation and Other Post-Closing Transactions By documents dated February 15, 2001, Mr. Kramer, acting on behalfof Alrey Trust, and Mr. Austin, acting as director ofDavreyn, resolved that Davreyn - 20 - be completely liquidated in accordance with section 331. In an attachedplan of liquidation Mr. Austin provided that Davreyn would distribute all ofits assets to Alrey Trust in redemption and cancellation ofall ofthe outstanding Davreyn stock. Further, on February 15, 2001, Mr. Austin authorized
Liquidation and Other Post-Closing Transactions By documents dated February 15, 2001, Mr. Kramer, acting on behalfof Alrey Trust, and Mr. Austin, acting as director ofDavreyn, resolved that Davreyn - 20 - be completely liquidated in accordance with section 331. In an attachedplan of liquidation Mr. Austin provided that Davreyn would distribute all ofits assets to Alrey Trust in redemption and cancellation ofall ofthe outstanding Davreyn stock. Further, on February 15, 2001, Mr. Austin authorized
Liquidation and Other Post-Closing Transactions By documents dated February 15, 2001, Mr. Kramer, acting on behalfof Alrey Trust, and Mr. Austin, acting as director ofDavreyn, resolved that Davreyn - 20 - be completely liquidated in accordance with section 331. In an attachedplan of liquidation Mr. Austin provided that Davreyn would distribute all ofits assets to Alrey Trust in redemption and cancellation ofall ofthe outstanding Davreyn stock. Further, on February 15, 2001, Mr. Austin authorized
Liquidation and Other Post-Closing Transactions By documents dated February 15, 2001, Mr. Kramer, acting on behalfof Alrey Trust, and Mr. Austin, acting as director ofDavreyn, resolved that Davreyn - 20 - be completely liquidated in accordance with section 331. In an attachedplan of liquidation Mr. Austin provided that Davreyn would distribute all ofits assets to Alrey Trust in redemption and cancellation ofall ofthe outstanding Davreyn stock. Further, on February 15, 2001, Mr. Austin authorized
eyn’s Liquidation and Other Post-Closing Transactions By documents dated February 15, 2001, Mr. Kramer, acting on behalf of Alrey Trust, and Mr. Austin, acting as director of Davreyn, resolved that Davreyn be completely liquidated in accordance with section 331. In an attached plan of liquidation Mr. Austin provided that Davreyn would distribute all of its assets to Alrey Trust in redemption and cancellation of all of the outstanding Davreyn stock. Further, on February 15, 2001, Mr. Austin autho
Petitioners' contention that section 331 governs all liquidations but section 332(a) exempts certain liquidations from creating income is erroneous.
Petitioners contend that any gain realized from a Qsub election constitutes income under section 331, but then section 332(a) exempts the realized gain from income with nonrecognition.
Petitioners contend that any gain realized from a Qsub election constitutes income under section 331, but then section 332(a) exempts the realized gain from income with nonrecognition.
Petitioners contend that any gain realized from a Qsub election constitutes income under section 331, but then section 332(a) exempts the realized gain from income with nonrecognition.
Petitioners contend that any gain realized from a Qsub election constitutes income under section 331, but then section 332(a) exempts the realized gain from income with nonrecognition.
Instead, by involving Fortrend, the trust would sell the stock of the corporation (holding $1 million cash) for $825,000. The trust would receive $175,000 (half of the corporation’s tax liability) more than if it had liquidated the corporation. The $175,000 excess of cash in the corporation ($1 million) over the amount paid by Fortrend ($
331 (2000), and because of an explicit exemption in the General Allotment Act of 1887, the Supreme Court - 6 - held that the taxpayers were not taxable on income received as the result of the sale of timber located on the trust lands. In Cross v. Commissioner, 83 T.C. 561 (1984), affd. sub nom. Dillon v. United States, 792 F.2d 849 (9th Cir.
The issue of law is whether 2618's transfer of the club to JKP, in November 1990, constituted a taxable liquidation of 2618, under section 331, or a tax-free reorganization under section 368(a)(1)(D) and/or (F).
tion that a de facto liquidation had occurred for Federal tax purposes: (1) Whether there is a manifest intention to liquidate; (2) whether - 9 - there is a continuing purpose to terminate corporate affairs and dissolve the corporation; and (3) whether the corporation’s activities are directed and confined to that purpose.
ute arose, and "all facts pertaining to the controversy." Id. (citing Morgan's Estate v. Commissioner, 332 F.2d 144, 151 (5th Cir. 1964)); see Barr v. Commissioner, T.C. Memo. 1989-420. • According to 6 Administration, Internal Revenue Manual (CCH) sec. 331.1, at 38,063, Inspection's purpose in conducting investigations of allegations against employees of the Internal - 22 - Revenue Service is to determine facts and to report them to management for a decision as to "whether the employee is suita
OPINION Nature of Transaction Respondent treats the September 15, 1992, transfer of jewelry inventory from Al Zuni to Khalaf as a distribution under - 9 - section 331 in complete liquidation of Al Zuni, which treatment petitioners do not seriously challenge.
331-358 (1998) for income that an individual Indian allottee derives directly from the land held in trust for him. The Court reasoned that there existed a congressional intent to exempt allotted lands from all charges and encumbrances until after the fee interest was conveyed to the individual allottee. It held that income received by a noncom
331-358 (1988) provides such an express exception to Federal 6 income taxation. The Indian General Allotment Act provided for the allotment of reservation lands to American Indians to be held in trust for allottees by the United States for a period of 25 years, or longer, during which time the allotted land cannot be alienated or encumbered. U
The terms "liquidation" or "complete liquidation" are not defined in section 331 or in the regulations thereunder.
Neither the Code nor the regulations to section 331 define the term “complete liquidation.” However, as we noted in Olmsted v.
Under section 331, amounts distributed in complete liquidation of a corporation shall be treated as full payment in - 21 - exchange for the stock. Sec. 331(a).9 The exchange generally is treated as a disposition. Secs. 331(c), 1001. Under section 334(a), the basis of property received in a complete liquidation in which gain or loss is recognized by the