§354 — Exchanges of stock and securities in certain reorganizations
76 citing cases
Statute Text — 26 U.S.C. §354
No gain or loss shall be recognized if stock or securities in a corporation a party to a reorganization are, in pursuance of the plan of reorganization, exchanged solely for stock or securities in such corporation or in another corporation a party to the reorganization.
Paragraph (1) shall not apply if—
the principal amount of any such securities received exceeds the principal amount of any such securities surrendered, or
any such securities are received and no such securities are surrendered.
Neither paragraph (1) nor so much of section 356 as relates to paragraph (1) shall apply to the extent that any stock (including nonqualified preferred stock, as defined in section 351(g)(2)), securities, or other property received is attributable to interest which has accrued on securities on or after the beginning of the holder’s holding period.
Nonqualified preferred stock (as defined in section 351(g)(2)) received in exchange for stock other than nonqualified preferred stock (as so defined) shall not be treated as stock or securities.
Clause (i) shall not apply in the case of a recapitalization under section 368(a)(1)(E) of a family-owned corporation.
For purposes of this clause, except as provided in regulations, the term “family-owned corporation” means any corporation which is described in clause (i) of section 447(d)(2)(C) 11 See References in Text note below. throughout the 8-year period beginning on the date which is 5 years before the date of the recapitalization. For purposes of the preceding sentence, stock shall not be treated as owned by a family member during any period described in section 355(d)(6)(B).
The statutory period for the assessment of any deficiency attributable to a corporation failing to be a family-owned corporation shall not expire before the expiration of 3 years after the date the Secretary is notified by the corporation (in such manner as the Secretary may prescribe) of such failure, and such deficiency may be assessed before the expiration of such 3-year period notwithstanding the provisions of any other law or rule of law which would otherwise prevent such assessment.
For treatment of the exchange if any property is received which is not permitted to be received under this subsection (including nonqualified preferred stock and an excess principal amount of securities received over securities surrendered, but not including property to which paragraph (2)(B) applies), see section 356.
For treatment of accrued interest in the case of an exchange described in paragraph (2)(B), see section 61.
Subsection (a) shall not apply to an exchange in pursuance of a plan of reorganization within the meaning of subparagraph (D) or (G) of section 368(a)(1), unless—
the corporation to which the assets are transferred acquires substantially all of the assets of the transferor of such assets; and
the stock, securities, and other properties received by such transferor, as well as the other properties of such transferor, are distributed in pursuance of the plan of reorganization.
For special rules for certain exchanges in pursuance of plans of reorganization within the meaning of subparagraph (D) or (G) of section 368(a)(1), see section 355.
Notwithstanding any other provision of this subchapter, subsection (a)(1) (and so much of section 356 as relates to this section) shall apply with respect to a plan of reorganization (whether or not a reorganization within the meaning of section 368(a)) for a railroad confirmed under section 1173 of title 11 of the United States Code, as being in the public interest.
Treasury Regulations
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Treas. Reg. §1.354-1Exchanges of stock and securities in certain reorganizations
(a) Section 354 provides that under certain circumstances no gain or loss is recognized to a shareholder who surrenders his stock in exchange for other stock or to a security holder who surrenders his securities in exchange for stock. Section 354 also provides that under certain circumstances a security holder may surrender securities and receive securities in the same principal amount or in a lesser principal amount without the recognition of gain or loss to him. The exchanges to which section 354 applies must be pursuant to a plan of reorganization as provided in section 368(a) and the stock and securities surrendered as well as the stock and securities received must be those of a corporation which is a party to the reorganization. Section 354 does not apply to exchanges pursuant to a reorganization described in section 368(a)(1)(D) unless the transferor corporation—
(1) Transfers all or substantially all of its assets to a single corporation, and
(2) Distributes all of its remaining properties (if any) and the stock, securities and other properties received in the exchange to its shareholders or security holders in pursuance of the plan of reorganization. The fact that properties retained by the transferor corporation, or received in exchange for the properties transferred in the reorganization, are used to satisfy existing liabilities not represented by securities and which were incurred in the ordinary course of business before the reorganization does not prevent the application of section 354 to an exchange pursuant to a plan of reorganization defined in section 368(a)(1)(D).
(b) Except as provided in section 354 (c) and (d), section 354 is not applicable to an exchange of stock or securities if a greater principal amount of securities is received than the principal amount of securities the recipient surrenders, or if securities are received and the recipient surrenders no securities. See, however, section 356 and regulations pertaining to such section. See also section 306 with respect to the receipt of preferred stock in a transaction to which section 354 is applicable.
(c) An exchange of stock or securities shall be subject to section 354(a)(1) even though—
(1) Such exchange is not pursuant to a plan of reorganization described in section 368(a), and
(2) The principal amount of the securities received exceeds the principal amount of the securities surrendered or if securities are received and no securities are surrendered—
if such exchange is pursuant to a plan of reorganization for a railroad corporation as defined in section 77(m) of the Bankruptcy Act (11 U.S.C. 205(m)) and is approved by the Interstate Commerce Commission under section 77 of such act or under section 20b of the Interstate Commerce Act (49 U.S.C. 20b) as being in the public interest. Section 354 is not applicable to such exchanges if there is received property other than stock or securities. See, however, section 356 and regulations pertaining to such section.
(d) The rules of section 354 may be illustrated by the following examples:
(e) Except as provided in § 1.356-6, for purposes of section 354, the term securities includes rights issued by a party to the reorganization to acquire its stock. For purposes of this section and section 356(d)(2)(B), a right to acquire stock has no principal amount. For this purpose, rights to acquire stock has the same meaning as it does under sections 305 and 317(a). Other Internal Revenue Code provisions governing the treatment of rights to acquire stock may also apply to certain exchanges occurring in connection with a reorganization. See, for example, sections 83 and 421 through 424 and the regulations thereunder. This paragraph (e) applies to exchanges occurring on or after March 9, 1998.
(f) See § 1.356-7(a) and (b) for the treatment of nonqualified preferred stock (as defined in section 351(g)(2)) received in certain exchanges for nonqualified preferred stock or preferred stock. See § 1.356-7(c) for the treatment of preferred stock received in certain exchanges for common or preferred stock described in section 351(g)(2)(C)(i)(II).
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Treas. Reg. §1.354-1(a)Section 354 provides that under certain circumstances no gain or loss is recognized to a shareholder who surrenders his stock in exchange for other stock or to a security holder who surrenders his securities in exchange for stock.
Section 354 provides that under certain circumstances no gain or loss is recognized to a shareholder who surrenders his stock in exchange for other stock or to a security holder who surrenders his securities in exchange for stock. Section 354 also provides that under certain circumstances a security holder may surrender securities and receive securities in the same principal amount or in a lesser principal amount without the recognition of gain or loss to him. The exchanges to which section 354 applies must be pursuant to a plan of reorganization as provided in section 368(a) and the stock and securities surrendered as well as the stock and securities received must be those of a corporation which is a party to the reorganization. Section 354 does not apply to exchanges pursuant to a reorganization described in section 368(a)(1)(D) unless the transferor corporation—
(1) Transfers all or substantially all of its assets to a single corporation, and
(2) Distributes all of its remaining properties (if any) and the stock, securities and other properties received in the exchange to its shareholders or security holders in pursuance of the plan of reorganization. The fact that properties retained by the transferor corporation, or received in exchange for the properties transferred in the reorganization, are used to satisfy existing liabilities not represented by securities and which were incurred in the ordinary course of business before the reorganization does not prevent the application of section 354 to an exchange pursuant to a plan of reorganization defined in section 368(a)(1)(D).
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Treas. Reg. §1.354-1(b)Except as provided in section 354 (c) and (d), section 354 is not applicable to an exchange of stock or securities if a greater principal amount of securities is received than the principal amount of securities the recipient surrenders, or if securities are received and the recipient surrenders no securities.
Except as provided in section 354 (c) and (d), section 354 is not applicable to an exchange of stock or securities if a greater principal amount of securities is received than the principal amount of securities the recipient surrenders, or if securities are received and the recipient surrenders no securities. See, however, section 356 and regulations pertaining to such section. See also section 306 with respect to the receipt of preferred stock in a transaction to which section 354 is applicable.
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Treas. Reg. §1.354-1(c)§1.354-1(c)
An exchange of stock or securities shall be subject to section 354(a)(1) even though—
(1) Such exchange is not pursuant to a plan of reorganization described in section 368(a), and
(2) The principal amount of the securities received exceeds the principal amount of the securities surrendered or if securities are received and no securities are surrendered—
if such exchange is pursuant to a plan of reorganization for a railroad corporation as defined in section 77(m) of the Bankruptcy Act (11 U.S.C. 205(m)) and is approved by the Interstate Commerce Commission under section 77 of such act or under section 20b of the Interstate Commerce Act (49 U.S.C. 20b) as being in the public interest. Section 354 is not applicable to such exchanges if there is received property other than stock or securities. See, however, section 356 and regulations pertaining to such section.
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Treas. Reg. §1.354-1(d)§1.354-1(d)
The rules of section 354 may be illustrated by the following examples:
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Treas. Reg. §1.354-1(e)Except as provided in § 1.
Except as provided in § 1.356-6, for purposes of section 354, the term securities includes rights issued by a party to the reorganization to acquire its stock. For purposes of this section and section 356(d)(2)(B), a right to acquire stock has no principal amount. For this purpose, rights to acquire stock has the same meaning as it does under sections 305 and 317(a). Other Internal Revenue Code provisions governing the treatment of rights to acquire stock may also apply to certain exchanges occurring in connection with a reorganization. See, for example, sections 83 and 421 through 424 and the regulations thereunder. This paragraph (e) applies to exchanges occurring on or after March 9, 1998.
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Treas. Reg. §1.354-1(f)See § 1.
See § 1.356-7(a) and (b) for the treatment of nonqualified preferred stock (as defined in section 351(g)(2)) received in certain exchanges for nonqualified preferred stock or preferred stock. See § 1.356-7(c) for the treatment of preferred stock received in certain exchanges for common or preferred stock described in section 351(g)(2)(C)(i)(II).
76 Citing Cases
§§ 354, 356, and 361 to apply to a reorganization described in I.R.C. Served 02/08/22 - 2 - § 368(a)(1)(F), the transaction--however actually effected--should be treated as involving (1) a transfer of the old corporation’s assets to the new corporation, in exchange for stock of the new corporation and the new corporation’s assumption of any liabili
OnNetworks' previously outstanding common stock was canceled in the merger for no consideration.5 The CM & JV Agreement expresses the intent of the parties to that agreement that the merger of petitioner's acquisition subsidiary into OnNetworks "qualify as a reorganization within the meaning of Section 368(a) of the Code".
OnNetworks' previously outstanding common stock was canceled in the merger for no consideration.5 The CM & JV Agreement expresses the intent of the parties to that agreement that the merger of petitioner's acquisition subsidiary into OnNetworks "qualify as a reorganization within the meaning of Section 368(a) of the Code".
(cid:16)042 Upon termination of a corporation's election under section 953(d), the corporation is treated for purposes ofsection 367 as a.domestic corporation which transfers all ofits assets'to a foreign corporation in an exchange to which section 354 applies.
(cid:16)042 Upon termination of a corporation's election under section 953(d), the corporation is treated for purposes ofsection 367 as a.domestic corporation which transfers all ofits assets'to a foreign corporation in an exchange to which section 354 applies.
354 applies and that therefore RHC's acquisition of the outstanding common: stock.
ibed in regulations in which the transferor does ndt recognize the entire amount of' the gain or loss realized on the transaction * * * Respondent argues, inter alia, that as part of the Ralphs transaction stock was acquired in an exchange to which sec. 354 applies and that therefore RHC's acquisition of the outstanding common: stock. of Ralphs does not constitute a purchase because of sec. 338 (h) (3) (A)~(ii) . Sec. 354 applies only to a transaction that qualifies as a reorganization under sec
though the exchange of common stock for common stock may be pursuant to a plan of reorganization under the terms of section 368(a) (1) (E) (recapitalization) and even though the exchange of common stock for common stock may be tax free by virtue of section 354.· {Id.] Respondent argues that the forbearance páyments were in substance nondeductible distributions to the investors with respect to their stock,- regardless of the fact that the payments were connected in a formal sense to the deferral
n though the exchange of common stock for common stock may be pursuant to a plan of reorganization under the terms of section 368(a)(1)(E) (recapitalization) and even though the exchange of common stock for common stock may be tax free by virtue of section 354. [Id.] Respondent argues that the forbearance payments were in substance nondeductible distributions to the investors with respect to their stock, regardless of the fact that the payments were connected in a formal sense to the deferral of
* * * TMD’s exchange of its 100% common stock interest in MB is ineligible for nonrecognition treatment under Code section 354 because the series of prearranged transactions that included the merger of Bender Mergersub into MB failed to qualify as a “reorganization” under section 368 of the Code.
* * * TMD’s exchange of its 100% common stock interest in MB is ineligible for nonrecognition treatment under Code section 354 because the series of prearranged transactions that included the merger of Bender Mergersub into MB failed to qualify as a “reorganization” under section 368 of the Code.
Section 354 provides that no gain or loss is recognized if under a plan of reorganization, stock or securities in a corporation that is a party to a reorganization are exchanged solely for stock or securities in such a corporation or in another corporation that is a party to the reorganization.
n thereof, is in control of the corporation to which the assets are transferred; but only if, in pursuance of the plan, stock or securities of the corporation to which the assets are transferred are distributed in a transaction which qualifies under section 354, 355, or 356; * * * The above-described transaction, commonly referred to as a “D” reorganization, is sometimes used to divide an existing corporation on a tax-deferred basis into more than one corporation for corporate business purposes.
n thereof, is in control of the corporation to which the assets are transferred; but only if, in pursuance of the plan, stock or securities of the corporation to which the assets are transferred are distributed in a transaction which qualifies under section 354, 355, or 356; * * * The above-described transaction, commonly referred to as a “D” reorganization, is sometimes used to divide an existing corporation on a tax-deferred basis into more than one corporation for corporate business purposes.
5--as consideration for petitioner’s 4(...continued) 368(a)(1)(G) as: a transfer by a corporation of all or part of its assets to another corporation in a title 11 or similar case; but only if, in pursuance of the plan, stock or securities of the corporation to which the assets are transferred are distributed in a transaction which qualifies under section 354, 355, or 356.
368(a)(1)(G) as: a transfer by a corporation of all or part of its assets to another corporation in a title 11 or similar case; but only if, in pursuance of the plan, stock or securities of the corporation to which the assets are transferred are distributed in a transaction which qualifies under section 354, 355, or 356.