§356 — Receipt of additional consideration
50 citing cases
Statute Text — 26 U.S.C. §356
If—
section 354 or 355 would apply to an exchange but for the fact that
the property received in the exchange consists not only of property permitted by section 354 or 355 to be received without the recognition of gain but also of other property or money,
then the gain, if any, to the recipient shall be recognized, but in an amount not in excess of the sum of such money and the fair market value of such other property.
If an exchange is described in paragraph (1) but has the effect of the distribution of a dividend (determined with the application of section 318(a)), then there shall be treated as a dividend to each distributee such an amount of the gain recognized under paragraph (1) as is not in excess of his ratable share of the undistributed earnings and profits of the corporation accumulated after February 28, 1913. The remainder, if any, of the gain recognized under paragraph (1) shall be treated as gain from the exchange of property.
If—
section 355 would apply to a distribution but for the fact that
the property received in the distribution consists not only of property permitted by section 355 to be received without the recognition of gain, but also of other property or money,
then an amount equal to the sum of such money and the fair market value of such other property shall be treated as a distribution of property to which section 301 applies.
If—
section 354 would apply to an exchange or section 355 would apply to an exchange or distribution, but for the fact that
the property received in the exchange or distribution consists not only of property permitted by section 354 or 355 to be received without the recognition of gain or loss, but also of other property or money,
then no loss from the exchange or distribution shall be recognized.
For purposes of this section—
Except as provided in paragraph (2), the term “other property” includes securities.
The term “other property” does not include securities to the extent that, under section 354 or 355, such securities would be permitted to be received without the recognition of gain.
If—
in an exchange described in section 354 (other than subsection (c) thereof), securities of a corporation a party to the reorganization are surrendered and securities of any corporation a party to the reorganization are received, and
the principal amount of such securities received exceeds the principal amount of such securities surrendered,
then, with respect to such securities received, the term “other property” means only the fair market value of such excess. For purposes of this subparagraph and subparagraph (C), if no securities are surrendered, the excess shall be the entire principal amount of the securities received.
If, in an exchange or distribution described in section 355, the principal amount of the securities in the controlled corporation which are received exceeds the principal amount of the securities in the distributing corporation which are surrendered, then, with respect to such securities received, the term “other property” means only the fair market value of such excess.
For purposes of this section—
Except as provided in paragraph (2), the term “other property” includes nonqualified preferred stock (as defined in section 351(g)(2)).
The term “other property” does not include nonqualified preferred stock (as so defined) to the extent that, under section 354 or 355, such preferred stock would be permitted to be received without the recognition of gain.
Notwithstanding any other provision of this section, to the extent that any of the other property (or money) is received in exchange for section 306 stock, an amount equal to the fair market value of such other property (or the amount of such money) shall be treated as a distribution of property to which section 301 applies.
For special rules for a transaction described in section 354, 355, or this section, but which—
results in a gift, see section 2501 and following, or
has the effect of the payment of compensation, see section 61(a)(1).
Treasury Regulations
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Treas. Reg. §1.356-1Receipt of additional consideration in connection with an exchange
(a) If in any exchange to which the provisions of section 354 or section 355 would apply except for the fact that there is received by the shareholders or security holders other property (in addition to property permitted to be received without recognition of gain by such sections) or money, then—
(1) The gain, if any, to the taxpayer shall be recognized in an amount not in excess of the sum of the money and the fair market value of the other property, but,
(2) The loss, if any, to the taxpayer from the exchange or distribution shall not be recognized to any extent.
(b) For purposes of computing the gain, if any, recognized pursuant to section 356 and paragraph (a)(1) of this section, to the extent the terms of the exchange specify the other property or money that is received in exchange for a particular share of stock or security surrendered or a particular class of stock or securities surrendered, such terms shall control provided that such terms are economically reasonable. To the extent the terms of the exchange do not specify the other property or money that is received in exchange for a particular share of stock or security surrendered or a particular class of stock or securities surrendered, a pro rata portion of the other property and money received shall be treated as received in exchange for each share of stock and security surrendered, based on the fair market value of such surrendered share of stock or security.
(c) If the distribution of such other property or money by or on behalf of a corporation has the effect of the distribution of a dividend, then there shall be chargeable to each distributee (either an individual or a corporation)—
(1) As a dividend, such an amount of the gain recognized as is not in excess of the distributee's ratable share of the undistributed earnings and profits of the corporation accumulated after February 28, 1913, and
(2) As a gain from the exchange of property, the remainder of the gain so recognized.
(d) The rules of this section may be illustrated by the following examples:
(e) Section 301(b)(1)(B) and section 301(d)(2) do not apply to a distribution of “other property” to a corporate shareholder if such distribution is within the provisions of section 356.
(f) See § 1.301-1(j) for certain transactions that are not within the scope of section 356.
(g) This section applies to exchanges and distributions of stock and securities occurring on or after January 23, 2006.
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Treas. Reg. §1.356-1(a)§1.356-1(a)
If in any exchange to which the provisions of section 354 or section 355 would apply except for the fact that there is received by the shareholders or security holders other property (in addition to property permitted to be received without recognition of gain by such sections) or money, then—
(1) The gain, if any, to the taxpayer shall be recognized in an amount not in excess of the sum of the money and the fair market value of the other property, but,
(2) The loss, if any, to the taxpayer from the exchange or distribution shall not be recognized to any extent.
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Treas. Reg. §1.356-1(b)For purposes of computing the gain, if any, recognized pursuant to section 356 and paragraph (a)(1) of this section, to the extent the terms of the exchange specify the other property or money that is received in exchange for a particular share of stock or security surrendered or a particular class of stock or securities surrendered, such terms shall control provided that such terms are economically reasonable.
For purposes of computing the gain, if any, recognized pursuant to section 356 and paragraph (a)(1) of this section, to the extent the terms of the exchange specify the other property or money that is received in exchange for a particular share of stock or security surrendered or a particular class of stock or securities surrendered, such terms shall control provided that such terms are economically reasonable. To the extent the terms of the exchange do not specify the other property or money that is received in exchange for a particular share of stock or security surrendered or a particular class of stock or securities surrendered, a pro rata portion of the other property and money received shall be treated as received in exchange for each share of stock and security surrendered, based on the fair market value of such surrendered share of stock or security.
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Treas. Reg. §1.356-1(c)§1.356-1(c)
If the distribution of such other property or money by or on behalf of a corporation has the effect of the distribution of a dividend, then there shall be chargeable to each distributee (either an individual or a corporation)—
(1) As a dividend, such an amount of the gain recognized as is not in excess of the distributee's ratable share of the undistributed earnings and profits of the corporation accumulated after February 28, 1913, and
(2) As a gain from the exchange of property, the remainder of the gain so recognized.
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Treas. Reg. §1.356-1(d)§1.356-1(d)
The rules of this section may be illustrated by the following examples:
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Treas. Reg. §1.356-1(e)Section 301(b)(1)(B) and section 301(d)(2) do not apply to a distribution of “other property” to a corporate shareholder if such distribution is within the provisions of section 356.
Section 301(b)(1)(B) and section 301(d)(2) do not apply to a distribution of “other property” to a corporate shareholder if such distribution is within the provisions of section 356.
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Treas. Reg. §1.356-1(f)See § 1.
See § 1.301-1(j) for certain transactions that are not within the scope of section 356.
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Treas. Reg. §1.356-1(g)This section applies to exchanges and distributions of stock and securities occurring on or after January 23, 2006.
This section applies to exchanges and distributions of stock and securities occurring on or after January 23, 2006.
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Treas. Reg. §1.356-2Receipt of additional consideration not in connection with an exchange
(a) If, in a transaction to which section 355 would apply except for the fact that a shareholder (individual or corporate) receives property permitted by section 355 to be received without the recognition of gain, together with other property or money, without the surrender of any stock or securities of the distributing corporation, then the sum of the money and the fair market value of the other property as of the date of the distribution shall be treated as a distribution of property to which the rules of section 301 (other than section 301(b) and section 301(d)) apply. See section 358 for determination of basis of such other property.
(b) Paragraph (a) of this section may be illustrated by the following examples:
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Treas. Reg. §1.356-2(a)If, in a transaction to which section 355 would apply except for the fact that a shareholder (individual or corporate) receives property permitted by section 355 to be received without the recognition of gain, together with other property or money, without the surrender of any stock or securities of the distributing corporation, then the sum of the money and the fair market value of the other property as of the date of the distribution shall be treated as a distribution of property to which the
If, in a transaction to which section 355 would apply except for the fact that a shareholder (individual or corporate) receives property permitted by section 355 to be received without the recognition of gain, together with other property or money, without the surrender of any stock or securities of the distributing corporation, then the sum of the money and the fair market value of the other property as of the date of the distribution shall be treated as a distribution of property to which the rules of section 301 (other than section 301(b) and section 301(d)) apply. See section 358 for determination of basis of such other property.
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Treas. Reg. §1.356-2(b)§1.356-2(b)
Paragraph (a) of this section may be illustrated by the following examples:
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Treas. Reg. §1.356-3Rules for treatment of securities as “other property”
(a) As a general rule, for purposes of section 356, the term other property includes securities. However, it does not include securities permitted under section 354 or section 355 to be received tax free. Thus, when securities are surrendered in a transaction to which section 354 or section 355 is applicable, the characterization of the securities received as “other property” does not include securities received where the principal amount of such securities does not exceed the principal amount of securities surrendered in the transaction. If a greater principal amount of securities is received in an exchange described in section 354 (other than subsection (c) or (d) thereof) or section 355 over the principal amount of securities surrendered, the term other property includes the fair market value of such excess principal amount as of the date of the exchange. If no securities are surrendered in exchange, the term other property includes the fair market value, as of the date of receipt, of the entire principal amount of the securities received.
(b) Except as provided in § 1.356-6, for purposes of this section, a right to acquire stock that is treated as a security for purposes of section 354 or 355 has no principal amount. Thus, such right is not other property when received in a transaction to which section 356 applies (regardless of whether securities are surrendered in the exchange). This paragraph (b) applies to transactions occurring on or after March 9, 1998.
(c) In the examples in this paragraph (c), stock means common stock and warrants means rights to acquire common stock. The following examples illustrate the rules of paragraph (a) of this section:
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Treas. Reg. §1.356-3(a)As a general rule, for purposes of section 356, the term other property includes securities.
As a general rule, for purposes of section 356, the term other property includes securities. However, it does not include securities permitted under section 354 or section 355 to be received tax free. Thus, when securities are surrendered in a transaction to which section 354 or section 355 is applicable, the characterization of the securities received as “other property” does not include securities received where the principal amount of such securities does not exceed the principal amount of securities surrendered in the transaction. If a greater principal amount of securities is received in an exchange described in section 354 (other than subsection (c) or (d) thereof) or section 355 over the principal amount of securities surrendered, the term other property includes the fair market value of such excess principal amount as of the date of the exchange. If no securities are surrendered in exchange, the term other property includes the fair market value, as of the date of receipt, of the entire principal amount of the securities received.
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Treas. Reg. §1.356-3(b)Except as provided in § 1.
Except as provided in § 1.356-6, for purposes of this section, a right to acquire stock that is treated as a security for purposes of section 354 or 355 has no principal amount. Thus, such right is not other property when received in a transaction to which section 356 applies (regardless of whether securities are surrendered in the exchange). This paragraph (b) applies to transactions occurring on or after March 9, 1998.
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Treas. Reg. §1.356-3(c)In the examples in this paragraph (c), stock means common stock and warrants means rights to acquire common stock.
In the examples in this paragraph (c), stock means common stock and warrants means rights to acquire common stock. The following examples illustrate the rules of paragraph (a) of this section:
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Treas. Reg. §1.356-4Exchanges for section 306 stock
If, in a transaction to which section 356 is applicable, other property or money is received in exchange for section 306 stock, an amount equal to the fair market value of the property plus the money, if any, shall be treated as a distribution of property to which section 301 is applicable. The determination of whether section 306 stock is surrendered for other property (including money) is a question of fact to be decided under all of the circumstances of each case. Ordinarily, the other property (including money) received will first be treated as received in exchange for any section 306 stock owned by a shareholder prior to such transaction. For example, if a shareholder who owns a share of common stock (having a basis to him of $100) and a share of preferred stock which is section 306 stock (having a basis to him of $100) surrenders both shares in a transaction to which section 356 is applicable for one share of common stock having a fair market value of $80 and one $100 bond having a fair market value of $100, the bond will be deemed received in exchange for the section 306 stock and it will be treated as a distribution to which section 301 is applicable to the extent of its entire fair market value ($100).
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Treas. Reg. §1.356-5Transactions involving gift or compensation
With respect to transactions described in sections 354, 355, or 356, but which—
(a) Result in a gift, see section 2501 and following, and the regulations pertaining thereto, or
(b) Have the effect of the payment of compensation, see section 61(a)(1), and the regulations pertaining thereto.
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Treas. Reg. §1.356-5(a)§1.356-5(a)
Result in a gift, see section 2501 and following, and the regulations pertaining thereto, or
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Treas. Reg. §1.356-5(b)Have the effect of the payment of compensation, see section 61(a)(1), and the regulations pertaining thereto.
Have the effect of the payment of compensation, see section 61(a)(1), and the regulations pertaining thereto.
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Treas. Reg. §1.356-6Rules for treatment of nonqualified preferred stock as other property
(a) In general. For purposes of §§ 1.354-1(e), 1.355-1(c), and 1.356-3(b), the terms stock and securities do not include—
(1) Nonqualified preferred stock, as defined in section 351(g)(2), received in exchange for (or in a distribution with respect to) stock, or a right to acquire stock, other than nonqualified preferred stock; or
(2) A right to acquire such nonqualified preferred stock, received in exchange for (or in a distribution with respect to) stock, or a right to acquire stock, other than nonqualified preferred stock.
(b) Exceptions. The following exceptions apply:
(1) Certain recapitalizations. Paragraph (a) of this section does not apply in the case of a recapitalization under section 368(a)(1)(E) of a family-owned corporation as described in section 354(a)(2)(C)(ii)(II).
(2) Transition rule. Paragraph (a) of this section does not apply to a transaction described in section 1014(f)(2) of the Taxpayer Relief Act of 1997 (111 Stat. 921).
(c) Effective date. This section applies to nonqualified preferred stock, or a right to acquire such stock, received in connection with a transaction occurring on or after March 9, 1998.
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Treas. Reg. §1.356-6(a)In general.
In general. For purposes of §§ 1.354-1(e), 1.355-1(c), and 1.356-3(b), the terms stock and securities do not include—
(1) Nonqualified preferred stock, as defined in section 351(g)(2), received in exchange for (or in a distribution with respect to) stock, or a right to acquire stock, other than nonqualified preferred stock; or
(2) A right to acquire such nonqualified preferred stock, received in exchange for (or in a distribution with respect to) stock, or a right to acquire stock, other than nonqualified preferred stock.
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Treas. Reg. §1.356-6(b)Exceptions.
Exceptions. The following exceptions apply:
(1) Certain recapitalizations. Paragraph (a) of this section does not apply in the case of a recapitalization under section 368(a)(1)(E) of a family-owned corporation as described in section 354(a)(2)(C)(ii)(II).
(2) Transition rule. Paragraph (a) of this section does not apply to a transaction described in section 1014(f)(2) of the Taxpayer Relief Act of 1997 (111 Stat. 921).
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Treas. Reg. §1.356-6(c)Effective date.
Effective date. This section applies to nonqualified preferred stock, or a right to acquire such stock, received in connection with a transaction occurring on or after March 9, 1998.
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Treas. Reg. §1.356-7Rules for treatment of nonqualified preferred stock and other preferred stock received in certain transactions
(a) Stock issued prior to effective date. Stock described in section 351(g)(2) is nonqualified preferred stock (NQPS) regardless of the date on which the stock is issued. However, sections 351(g), 354(a)(2)(C), 355(a)(3)(D), 356(e), and 1036(b) do not apply to any transaction occurring prior to June 9, 1997, or to any transaction occurring after June 8, 1997, that is described in section 1014(f)(2) of the Taxpayer Relief Act of 1997, Public Law 105-34 (111 Stat. 788, 921). For purposes of this section, preferred stock that is not NQPS is referred to as Qualified Preferred Stock (QPS).
(b) Receipt of preferred stock in exchange for (or distribution on) substantially identical preferred stock—(1) General rule. For purposes of sections 354(a)(2)(C)(i), 355(a)(3)(D), and 356(e)(2), preferred stock is QPS, even though it is described in section 351(g)(2), if it is received in exchange for (or in a distribution with respect to) preferred stock (the original preferred stock) that is QPS, provided—
(i) The original preferred stock is QPS solely because, on its issue date, either a right or obligation described in clause (i), (ii), or (iii) of section 351(g)(2)(A) was not exercisable until after a 20-year period beginning on the issue date, or the right or obligation was exercisable within the 20-year period beginning on the issue date but was subject to a contingency which made remote the likelihood of the redemption or purchase, or the issuer's (or a related party's) right to redeem or purchase the stock was not more likely than not to be exercised within a 20-year period beginning on the issue date, or because of any combination of these reasons; and
(ii) The stock received is substantially identical to the original preferred stock.
(2) Substantially identical. The stock received is substantially identical to the original preferred stock if—
(i) The stock received does not contain any term or terms that, in relation to any term or terms of the original preferred stock, either decrease the period in which a right or obligation described in clause (i), (ii), or (iii) of section 351(g)(2)(A) can be exercised, or increase the likelihood that such a right or obligation will be exercised, or accelerate the timing of the returns from the stock instrument, including the timing of actual or deemed dividends or other distributions received on the stock; and
(ii) As a result of the exchange or distribution, exercise of the right or obligation does not become more likely than not to occur within a 20-year period beginning on the issue date of the original preferred stock.
(3) Treatment of stock received. The stock received will continue to be treated as QPS in subsequent transactions involving such stock, and the principles of this paragraph (b) apply to such transactions as though the stock received is the original preferred stock issued on the same date as the original preferred stock.
(c) Stock transferred for services. For purposes of sections 351(g)(1), 354(a)(2)(C)(i), 355(a)(3)(D), and 356(e)(2), preferred stock containing a right or obligation described in clause (i), (ii) or (iii) of section 351(g)(2)(A) that is exercisable only upon the holder's separation from service from the issuer or a related person (as described in section 351(g)(3)(B)) will be treated as transferred in connection with the performance of services (and representing reasonable compensation) within the meaning of section 351(g)(2)(C)(i)(II), if such preferred stock is received in exchange for (or in a distribution with respect to) existing stock containing a similar right or obligation (exercisable only upon separation from service) and the existing stock was transferred in connection with the performance of services for the issuer or a related person (and represented reasonable compensation when transferred). In applying the rules relating to NQPS, the preferred stock received will continue to be treated as transferred in connection with the performance of services (and representing reasonable compensation) in subsequent transactions involving such stock, and the principles of this paragraph (c) apply to such transactions.
(d) Rights to acquire stock. For purposes of § 1.356-6, the principles of paragraphs (a), (b), and (c) of this section apply.
(e) Examples. In the examples in this paragraph (e), T and P are corporations, A is a shareholder of T, and A surrenders and receives (in addition to the stock exchanged in the examples) common stock in the reorganizations described. The following examples illustrate paragraphs (a), (b), and (c) of this section:
(f) Effective dates. This section applies to transactions occurring on or after October 2, 2000.
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Treas. Reg. §1.356-7(a)Stock issued prior to effective date.
Stock issued prior to effective date. Stock described in section 351(g)(2) is nonqualified preferred stock (NQPS) regardless of the date on which the stock is issued. However, sections 351(g), 354(a)(2)(C), 355(a)(3)(D), 356(e), and 1036(b) do not apply to any transaction occurring prior to June 9, 1997, or to any transaction occurring after June 8, 1997, that is described in section 1014(f)(2) of the Taxpayer Relief Act of 1997, Public Law 105-34 (111 Stat. 788, 921). For purposes of this section, preferred stock that is not NQPS is referred to as Qualified Preferred Stock (QPS).
50 Citing Cases
2021). Consequently, that provision of the divorce instrument requiring Alejandro to make family support payments only until both minor children emancipate is a child-related contingency that encompasses types of contingencies expressly specified in section 71(c)(2)(A), i.e., “attaining a specified age, marrying . . . or a similar c
68-23, supra, wherein, as stated, the Commissioner concluded that, in determining gain or loss on a merger transaction to which section 356 applies, blocks ofstock in which a taxpayerhas different bases are to be considered separately, and a loss on one block ofstock may not offset or reduce a gain recognized on another block ofstock.
The benefits must be in an amount equal to 60 percent of the "average salary" as defined in section 353 .651, subdivision 2, plus an additional percent specified in section 356 .315, subdivision 6, of that average salary for each year of service in excess of 20 -19- years .
ates the general rule that “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.” Section 356 requires recognition of gain from an exchange in which property other than that permitted under - 107 - section 354 (or section 355) (i.e., boot) is received; the gain recognized is not i
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.” Section 356 requires recognition of gain from an exchange in which property other than that permitted under section 354 (or section 355) (i.e., boot) is received; the gain recognized is not in excess of the sum of money or the fair market value of ot
isition of all of the common stock in a tax-free reorganization under section 368(a)(1)(C), is taxable to the shareholders under section 302 as a transaction separate from the reorganization. The cash is not “boot” taxable to the shareholders under section 356. In both of the G.C.M.’s, Counsel explicitly bases his determination on the fact that the acquired corporation used its own funds for the redemption. Although the issue of which corporation provided the funds for the redemption was not spe
isition of all of the common stock in a tax-free reorganization under section 368(a)(1)(C), is taxable to the shareholders under section 302 as a transaction separate from the reorganization. The cash is not “boot” taxable to the shareholders under section 356. In both of the G.C.M.’s, Counsel explicitly bases his determination on the fact that the acquired corporation used its own funds for the redemption. Although the issue of which corporation provided the funds for the redemption was not spe
isition of all of the common stock in a tax-free reorganization under section 368(a)(1)(C), is taxable to the shareholders under section 302 as a transaction separate from the reorganization. The cash is not “boot” taxable to the shareholders under section 356. In both of the G.C.M.’s, Counsel explicitly bases his determination on the fact that the acquired corporation used its own funds for the redemption. Although the issue of which corporation provided the funds for the redemption was not spe
uisition of all of the common stock in a tax-free reorganization under section 368(a)(1)(C), is taxable to the shareholders under section 302 as a transaction separate from the reorganization. The cash is not “boot” taxable to the shareholders under section 356. In both of the G.C.M.’s, Counsel explicitly bases his determination on the fact that the acquired corporation used its own funds for the redemption. Although the issue of which corporation provided the funds for the redemption was not sp