Frequently Asked Questions
Who is eligible for the Tax-Free Distribution of Qualified Property?
The distribution must be made to shareholders in pursuance of the plan of reorganization and consist of qualified property.
How does the Tax-Free Distribution of Qualified Property work?
Prevents the recognition of gain or loss by a corporation when it distributes 'qualified property' (stock or obligations of a party to the reorganization) to its shareholders.
What law authorizes the Tax-Free Distribution of Qualified Property?
The Tax-Free Distribution of Qualified Property is authorized under IRC §361(c) of the Internal Revenue Code (Title 26, United States Code).
Statutory Text — IRC §361
Source: Internal Revenue Code, Title 26, United States Code
§ 361. Nonrecognition of gain or loss to corporations; treatment of distributions(a) General ruleNo gain or loss shall be recognized to a corporation if such corporation is a party to a reorganization and exchanges property, in pursuance of the plan of reorganization, solely for stock or securities in another corporation a party to the reorganization.
(b) Exchanges not solely in kind(1) GainIf subsection (a) would apply to an exchange but for the fact that the property received in exchange consists not only of stock or securities permitted by subsection (a) to be received without the recognition of gain, but also of other property or money, then—(A) Property distributedIf the corporation receiving such other property or money distributes it in pursuance of the plan of reorganization, no gain to the corporation shall be recognized from the exchange, but
(B) Property not distributedIf the corporation receiving such other property or money does not distribute it in pursuance of the plan of reorganization, the gain, if any, to the corporation shall be recognized.
The amount of gain recognized under subparagraph (B) shall not exceed the sum of the money and the fair market value of the other property so received which is not so distributed.
(2) LossIf subsection (a) would apply to an exchange but for the fact that the property received in exchange consists not only of property permitted by subsection (a) to be received without the recognition of gain or loss, but also of other property or money, then no loss from the exchange shall be recognized.
(3) Treatment of transfers to creditorsFor purposes of paragraph (1), any transfer of the other property or money received in the exchange by the corporation to its creditors in connection with the reorganization shall be treated as a distribution in pursuance of the plan of reorganization. The Secretary may prescribe such regulations as may be necessary to prevent avoidance of tax through abuse of the preceding sentence or subsection (c)(3). In the case of a reorganization described in section 368(a)(1)(D) with respect to which stock or securities of the corporation to which the assets are transferred are distributed in a transaction which qualifies under section 355, this paragraph shall apply only to the extent that the sum of the money and the fair market value of other property transferred to such creditors does not exceed the adjusted bases of such assets transferred (reduced by the amount of the liabilities assumed (within the meaning of section 357(c))).
(c) Treatment of distributions(1) In generalExcept as provided in paragraph (2), no gain or loss shall be recognized to a corporation a party to a reorganization on the distribution to its shareholders of property in pursuance of the plan of reorganization.
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