Code of Federal Regulations (Last Updated: July 5, 2024) |
Title 26 - Internal Revenue |
Chapter I - Internal Revenue Service, Department of the Treasury |
SubChapter A - Income Tax |
Part 1 - Income Taxes |
Effects on Recipients |
§ 1.301-1 - Rules applicable with respect to distributions of money and other property.
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§ 1.301-1 Rules applicable with respect to distributions of money and other property.
(b(a) General. Section 301 provides the general rule for the treatment of distributions on or after June 22, 1954made in taxable years beginning after December 31, 1986, of property by a corporation to a shareholder with respect to its stock. The term property is defined in section 317(a). Such distributions, except Except as otherwise provided in this chapter, shall be chapter 1 of the Internal Revenue Code (Code), such distributions are treated as provided in section 301(c). Under section 301(c), distributions may be included in gross income to the extent the amount distributed is considered a dividend under section 316, applied against and reduce reduces the adjusted basis of the stock, treated as gain from the sale or exchange of property, or (exempt from Federal income tax in the case of certain distributions out of increase in value accrued before March 1, 1913) may be exempt from tax. The amount of the distributions a distribution to which section 301 applies is determined in accordance with the provisions of section 301(b). The basis of property received in a distribution to which section 301 applies is determined in accordance with the provisions of section 301(d). Accordingly, except as otherwise provided in this chapter, a distribution on or after June 22, 1954, of property by a corporation to a shareholder with respect to its stock shall be included in gross income to the extent the amount distributed is considered a dividend under section 316. For examples of distributions treated otherwise, see sections 116, 301(c)(2), 301(c)(3)(B), 301(e), 302(b), 303, and 305. See also part II (relating to distributions in partial or complete liquidation), part III (relating to corporate organizations and reorganizations), and part IV (relating to insolvency reorganizations), subchapter C, chapter 1 of the Code.
the fair market value of the property, as provided in section 301(d).
(b) Amount of distribution and determination of fair market value. The amount of a distribution to which section 301 applies is the amount of money received in the distribution, plus the fair market value of other property received in the distribution. The fair market value of any property distributed is determined as of the date of the distribution.
shall be(c) Time of inclusion in gross income and time of determination of fair market value. A distribution made by a corporation to its shareholders
. Howeveris included in the gross income of the distributees when the cash or other property is unqualifiedly made subject to their demands
if such distribution is a distribution other than in cash, the fair market value of the property shall be determined as of the date of distribution,
distribution is includible in gross incomewithout regard to whether such date is the same as that on which the
(the adjusted basis of which exceeds its fair market valuecorporation made the distribution. For example, if a corporation distributes a taxable dividend in property
31, 1955) on December 31, 1955, whichon December
demand30, 2021, that is received by, or unqualifiedly made subject to the
2demands of, its shareholders on January
19563,
312022, the amount to be included in the gross income of the shareholders will be the fair market value of such property on December
1955,30,
22021, determined under paragraph (b) of this section, although such amount will not be includible in the gross income of the shareholders until January
19563,
2022.
c(
hisd) Application of section to shareholders. Section 301 is not applicable to an amount paid by a corporation to a shareholder unless the amount is paid to the shareholder in
the shareholder's capacity as such.
d) Distributions to corporate shareholders.(
(1) If the shareholder is a corporation, the amount of any distribution to be taken into account under section 301(c) shall be:
(i) The amount of money distributed,
(ii) An amount equal to the fair market value of any property distributed which consists of any obligations of the distributing corporation, stock of the distributing corporation treated as property under section 305(b), or rights to acquire such stock treated as property under section 305(b), plus
(iii) In the case of a distribution not described in subdivision (iv) of this subparagraph, an amount equal to (a) the fair market value of any other property distributed or, if lesser, (b) the adjusted basis of such other property in the hands of the distributing corporation (determined immediately before the distribution and increased for any gain recognized to the distributing corporation under section 311 (b), (c), or (d), or under section 341(f), 617(d), 1245(a), 1250(a), 1251(c), 1252(a), or 1254(a)), or
(iv) In the case of a distribution made after November 8, 1971, to a shareholder which is a foreign corporation, an amount equal to the fair market value of any other property distributed, but only if the distribution received by such shareholder is not effectively connected for the taxable year with the conduct of a trade or business in the United States by such shareholder.
(2) In the case of a distribution the amount of which is determined by reference to the adjusted basis described in subparagraph (1)(iii)(b) of this paragraph:
(i) That portion of the distribution which is a dividend under section 301(c)(1) may not exceed such adjusted basis, or
(ii) If the distribution is not out of earnings and profits, the amount of the reduction in basis of the shareholder's stock, and the amount of any gain resulting from such distribution, are to be determined by reference to such adjusted basis of the property which is distributed.
(3) Notwithstanding paragraph (d)(1)(iii), if a distribution of property described in such paragraph is made after December 31, 1962, by a foreign corporation to a shareholder which is a corporation, the amount of the distribution to be taken into account under section 301(c) shall be determined under section 301(b)(1)(C) and paragraph (n) of this section.
(e) Adjusted basis. In determining the adjusted basis of property distributed in the hands of the distributing corporation immediately before the distribution for purposes of section 301(b)(1)(B)(ii), (b)(1)(C)(i), and (d)(2)(B), the basis to be used shall be the basis for determining gain upon a sale or exchange.
(f) Examples. The application of this section (except paragraph (n)) may be illustrated by the following examples:
Example 1.
On January 1, 1955, A, an individual1955e) Example. Corporation M, formed in 1998, has never been an acquiring corporation in a transaction to which section 381(a) applies. On January 1, 2021, A, an individual, owned all of the stock of Corporation M, consisting of a single share with an adjusted basis of $2,000. During
19542021, A received distributions from Corporation M totaling $30,000, consisting of $10,000 in cash and listed securities having a basis in the hands of Corporation M and a fair market value on the date distributed of $20,000. Corporation M's taxable year is the calendar year. As of December 31,
accumulated after February 28, 1913,2020, Corporation M had accumulated earnings and profits
1955in the amount of $26,000, and it had no earnings and profits and no deficit for
will be2021. Of the $30,000 received by A, $26,000
will beis treated as an ordinary dividend; of the remaining $4,000
his stock;, $2,000 is applied against and reduces the adjusted basis of
his stock will either beA's stock under section 301(c)(2), and the $2,000 in excess of the adjusted basis of
(A's stock is treated as gain from the sale or exchange of property
) or, if out of increase in value accrued before March 1, 1913, will (under section 301(c)(3)(B)) be exempt from taxunder section 301(c)(3)(A)
subsequently. If A
hisimmediately sells
the stock in Corporation M, the basis for determining gain or loss on the sale will be zero.
Example 2.
The facts are the same as in Example 1 with the exceptions that the shareholder of Corporation M is Corporation W and that the securities which were distributed had an adjusted basis to Corporation M of $15,000. The distribution received by Corporation W totals $25,000 consisting of $10,000 in cash and securities with an adjusted basis of $15,000. The total $25,000 will be treated as a dividend to Corporation W since the earnings and profits of Corporation M ($26,000) are in excess of the amount of the distribution.
(g)Example 3.
Corporation X owns timber land which it acquired prior to March 1, 1913, at a cost of $50,000 with $5,000 allocated as the separate cost of the land. On March 1, 1913, this property had a fair market value of $150,000 of which $135,000 was attributable to the timber and $15,000 to the land. All of the timber was cut prior to 1955 and the full appreciation in the value thereof, $90,000 ($135,000−$45,000), realized through depletion allowances based on March 1, 1913, value. None of this surplus from realized appreciation had been distributed. In 1955, Corporation X sold the land for $20,000 thereby realizing a gain of $15,000. Of this gain, $10,000 is due to realized appreciation in value which accrued before March 1, 1913 ($15,000−$5,000). Of the gain of $15,000, $5,000 is taxable. Therefore, at December 31, 1955, Corporation X had a surplus from realized appreciation in the amount of $100,000. It had no accumulated earnings and profits and no deficit at January 1, 1955. The net earnings for 1955 (including the $5,000 gain on the sale of the land) were $20,000. During 1955, Corporation X distributed $75,000 to its stockholders. Of this amount, $20,000 will be treated as a dividend. The remaining $55,000, which is a distribution of realized appreciation, will be applied against and reduce the adjusted basis of the shareholders' stock. If any part of the $55,000 is in excess of the adjusted basis of a shareholder's stock, such part will be exempt from tax.
the purpose(f) Reduction for liabilities -
(1) General rule. For
shall bepurposes of section 301(b)(2), no reduction
unlessin the amount of a distribution is made for the amount of any liability,
gexcept to the extent the liability is assumed by the shareholder within the meaning of section 357(d).
(2) No reduction below zero. Any reduction pursuant to paragraph (
shallf)(1) of this section
Effectivedoes not cause the amount of the distribution to be reduced below zero.
(3)
gApplicability dates -
(i) In general. This paragraph (
This paragraph (g) also applies tof) applies to distributions occurring after January 4, 2001.
(ii) Retroactive application.
if the distribution is made as part of a transaction described in, or substantially similar to, the transaction in Notice 99-59 (1999-2 C.B. 761), including transactions designed to reduce gain (For distributions made on or before January 4, 2001,
601.601(d)(2) of this chapter). For rules for distributions on or before January 4, 2001 (other than distributions on or before that date to which this paragraph (g) applies), see rules in effect on January 4, 2001 (see §see §
2001)1.301-1(g) as contained in 26 CFR part 1 revised April 1,
2021.
h(
theg) Basis. The basis of property received in
shall be - (1) If the shareholdera distribution to which section 301 applies
not a corporation,is
;the fair market value of such property
(2) If the shareholder is a corporation -
(i) In the case of a distribution of the obligations of the distributing corporation or of the stock of such corporation or rights to acquire such stock (if such stock or rights are treated as property under section 305(b)), the fair market value of such obligations, stock, or rights;
(ii) In the case of the distribution of any other property, except as provided in subdivision (iii) (relating to certain distributions by a foreign corporation) or subdivision (iv) (relating to certain distributions to foreign corporate distributees) of this subparagraph, whichever of the following is the lesser -
(a) The fair market value of such property; or
(b) The adjusted basis (in the hands of the distributing corporation immediately before the distribution) of such property increased in the amount of gain to the distributing corporation which is recognized under section 311(b) (relating to distributions of LIFO inventory), section 311(c) (relating to distributions of property subject to liabilities in excess of basis), section 311(d) (relating to appreciated property used to redeem stock), section 341(f) (relating to certain sales of stock of consenting corporations), section 617(d) (relating to gain from dispositions of certain mining property), section 1245(a) or 1250(a) (relating to gain from dispositions of certain depreciable property), section 1251(c) (relating to gain from disposition of farm recapture property), section 1252(a) (relating to gain from disposition of farm land), or 1254(a) (relating to gain from disposition of interest in natural resource recapture property);
(iii) In the case of the distribution by a foreign corporation of any other property after December 31, 1962, in a distribution not described in subdivision (iv) of this subparagraph, the amount determined under paragraph (n) of this section;
(iv) In the case of the distribution of any other property made after November 8, 1971, to a shareholder which is a foreign corporation, the fair market value of such property, but only if the distribution received by such shareholder is not effectively connected for the taxable year with the conduct of a trade or business in the United States by such shareholder.
(j)(i) [Reserved]
. See paragraph (b) of this section.
which is not a corporation(h) Transfers for less than fair market value. If property is transferred by a corporation to a shareholder
shall befor an amount less than its fair market value in a sale or exchange, such shareholder
shall be the difference between the amount paid for the property and its fair market value. If propertyis treated as having received a distribution to which section 301 applies. In such case, the amount of the distribution
transferred in a sale or exchange by a corporation to a shareholder which is a corporation, for an amount less than its fair market value and also less than its adjusted basis, such shareholder shall be treated as having received a distribution to which section 301 applies, and - (1) Whereis
fair market value of the property equals or exceeds its adjusted basis in the hands of the distributing corporation the amount of the distribution shall be thethe
adjusted basis (increased by the amount of gain recognized under section 311 (b), (c), or (d), or under section 341(f), 617(d), 1245(a), 1250(a), 1251(c), 1252(a), or 1254(a) to the distributing corporation) over the amount paid for the property; (2) Where theexcess of the
is less than its adjusted basis in the hands of the distributing corporation, the amount of the distribution shall be the excess of such fair market valuefair market value of the property
the property. If property is transferred in a sale or exchange after December 31, 1962, by a foreign corporation to a shareholder which is a corporation for an amount less than the amount which would have been computed under paragraph (n) of this section if such property had been received in a distribution to which section 301 applied, such shareholder shall be treated as having received a distribution to which section 301 applies, and the amount of the distribution shall be the excess of the amount which would have been computed under paragraph (n) of this section with respect to such property over the amount paid for the property. In all cases, the earnings and profits of the distributing corporation shall be decreased by the excess of the basis of the property in the hands of the distributing corporation over the amount received therefor. In computing gain or loss from the subsequent sale of such property, its basis shall be the amount paid for the property increased by the amount of the distribution.over the amount paid for
If property is transferred in a sale or exchange after December 31, 1962, by a foreign corporation to a shareholder which is a corporation for an amount less than the amount which would have been computed under paragraph (n) of this section if such property had been received in a distribution to which section 301 applied, such shareholder shall be treated as having received a distribution to which section 301 applies, and the amount of the distribution shall be the excess of the amount which would have been computed under paragraph (n) of this section with respect to such property over the amount paid for the property. Notwithstanding the preceding provisions of this paragraph, if property is transferred in a sale or exchange after November 8, 1971, by a corporation to a shareholder which is a foreign corporation, for an amount less than its fair market value, and if paragraph (d)(1)(iv) of this section would apply if such property were received in a distribution to which section 301 applies, such shareholder shall be treated as having received a distribution to which section 301 applies and the amount of the distribution shall be the difference between the amount paid for the property and its fair market value. In all cases, the earnings and profits of the distributing corporation shall be decreased by the excess of the basis of the property in the hands of the distributing corporation over the amount received therefor. In computing gain or loss from the subsequent sale of such property, its basis shall be the amount paid for the property increased by the amount of the distribution.
(k) Application of rule respecting transfers for less than fair market value. The application of paragraph (j) of this section may be illustrated by the following examples:
Example 1.
On January 1, 1955, A, an individual shareholder of corporation X, purchased property from that corporation for $20. The, and its basis in the hands of corporation X was $25such property at the time of the transfer. For example, on January 3, 2021, A, a shareholder of Corporation X, purchased property from X for $20 when the fair market value of such property was $100
If A were a corporation, the amount of the distribution would be $5. The amount of the distribution to A determined under section 301(b) is $80.
assuming that sections 311 (b) and (c), 1245(a), and 1250(a) do not apply), the excess of the basis of the property in the hands of corporation X over the amount received therefor. The basis of such property to corporation A would be $25. If the basis of the property in the hands of corporation X were $10, the corporate shareholder, A, would not receive a distribution. The basis of such property to corporation A would be $20. Whether or not A is a corporation, the excess of the amount paid over the basis of the property in the hands of corporation X ($20 over $10) would be a taxable gain to corporation X.(
Example 2.
On January 1, 1963, corporation A, which is a shareholder of corporation B (a foreign corporation engaged in business within the United States), purchased one share of corporation X stock from B for $20. The fair market value of the share was $100, and its adjusted basis in the hands of B was $25. Assume that if the share of corporation X stock had been received by A in a distribution to which section 301 applied, the amount of the distribution under paragraph (n) of this section would have been $55. The amount of the distribution under section 301 is $35,.e., $55 (amount computed under paragraph (n) of this section) minus $20 (amount paid for the property). The basis of such property to A is $55.(l)i
) [Reserved]
,(j) Transactions treated as distributions. A distribution to shareholders with respect to their stock is within the terms of section 301, although it takes place at the same time as another transaction, if the distribution is in substance a separate transaction (whether or not connected in a formal sense). This situation is most likely to occur in the case of a recapitalization, a reincorporation, or a merger of a corporation with a newly organized corporation having substantially no property. For example, if a corporation having only common stock outstanding
in theexchanges one share of newly issued common stock and one bond
bondswith a principal amount of $10 for each share of outstanding common stock, the distribution of the
theirbond will be a distribution of property (to the extent of
even though the exchange of common stock for common stock may be tax free by virtueits fair market value) to which section 301 applies, even 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
may result in the shareholder not recognizing any gain or loss on the exchange by reason of section 354.
m(
shall bek) Cancellation of indebtedness. The cancellation of indebtedness of a shareholder by a corporation
is treated as a distribution of property.
n) [Reserved](
(p) Cross(o) Distributions of certain property by DISC's to corporate shareholders. See § 1.997-1 for the rule that if a corporation which is a DISC or former DISC (as defined in section 992(a)(1) or (3) as the case may be) makes a distribution of property (other than money and other than the obligations of the DISC or former DISC) out of accumulated DISC income (as defined in section 996(f)(1)) or previously taxed income (as defined in section 996(f)(2)), such distribution of property shall be treated as if it were made to an individual and that the basis of the property distributed, in the hands of the recipient corporation, shall be determined as if such property were distributed to an individual.
regulations thereunderl) Cross-references. For certain rules relating to adjustments to earnings and profits and for determining the extent to which a distribution is a dividend, see sections 312 and 316 of the Code and
the regulations in this part under sections 312 and 316.
q(
qm) Split-dollar and other life insurance arrangements -
(1) Split-dollar life insurance arrangements -
(i) Distribution of economic benefits. The provision by a corporation to its shareholder pursuant to a split-dollar life insurance arrangement, as defined in § 1.61-22(b)(1) or (2), of economic benefits described in § 1.61-22(d), or of amounts described in § 1.61-22(e), is treated as a distribution of property, the amount of which is determined under § 1.61-22(d) and (e), respectively.
(ii) Distribution of entire contract or undivided interest therein. A transfer (within the meaning of § 1.61-22(c)(3)) of the ownership of a life insurance contract (or an undivided interest therein) that is part of a split-dollar life insurance arrangement is a distribution of property, the amount of which is determined pursuant to § 1.61-22(g)(1) and (2).
(2) Other life insurance arrangements. A payment by a corporation on behalf of a shareholder of premiums on a life insurance contract or an undivided interest therein that is owned by the shareholder constitutes a distribution of property, even if such payment is not part of a split-dollar life insurance arrangement under § 1.61-22(b).
(3) When distribution is made -
(i) In general. Except as provided in paragraph (
bm)(3)(ii) of this section, paragraph (
shall applyc) of this section
qapplies to determine when a distribution described in paragraph (
b(ii) Exception. Notwithstanding paragraph (
qc) of this section, a distribution described in paragraph (
shall bem)(1)(ii) of this section
Effectiveis treated as made by a corporation to its shareholder at the time that the life insurance contract, or an undivided interest therein, is transferred (within the meaning of § 1.61-22(c)(3)) to the shareholder.
(4)
qApplicability date -
(i) General rule. This paragraph (
qm) applies to split-dollar and other life insurance arrangements entered into after September 17, 2003. For purposes of this paragraph (
m)(4), a split-dollar life insurance arrangement is entered into as determined under § 1.61-22(j)(1)(ii).
(ii) Modified arrangements treated as new arrangements. If a split-dollar life insurance arrangement entered into on or before September 17, 2003, is materially modified (within the meaning of § 1.61-22(j)(2)) after September 17, 2003, the arrangement is treated as a new arrangement entered into on the date of the modification.
(n) Applicability date. Paragraphs (a) through (c), (e), (g), and (h) of this section apply to distributions under section 301 made after September 22, 2021.
[T.D. 65009954, 25 86 FR 1160752613, NovSept. 2622, 1960]
2021]