I.R.C. § 354(a) General Rule
I.R.C. § 354(a)(1) In General —
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.
I.R.C. § 354(a)(2) Limitation
I.R.C. § 354(a)(2)(A) Excess Principal Amount —
Paragraph (1) shall not apply if—
I.R.C. § 354(a)(2)(A)(i) —
the principal amount of any such securities received exceeds the principal amount
of any such securities surrendered, or
I.R.C. § 354(a)(2)(A)(ii) —
any such securities are received and no such securities are surrendered.
I.R.C. § 354(a)(2)(B) Property Attributable To Accrued Interest —
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.
I.R.C. § 354(a)(2)(C) Nonqualified Preferred Stock
I.R.C. § 354(a)(2)(C)(i) In General —
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.
I.R.C. § 354(a)(2)(C)(ii) Recapitalizations Of Family-Owned Corporations
I.R.C. § 354(a)(2)(C)(ii)(I) In General —
Clause (i) shall not apply in the case of a recapitalization under section 368(a)(1)(E) of a family-owned corporation.
I.R.C. § 354(a)(2)(C)(ii)(II) 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) 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).
I.R.C. § 354(a)(2)(C)(ii)(III) Extension Of Statute Of Limitations —
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.
I.R.C. § 354(a)(3) Cross References
I.R.C. § 354(a)(3)(A) —
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.
I.R.C. § 354(a)(3)(B) —
For treatment of accrued interest in the case of an exchange described in paragraph
(2)(B), see section 61.
I.R.C. § 354(b) Exception
I.R.C. § 354(b)(1) In General —
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—
I.R.C. § 354(b)(1)(A) —
the corporation to which the assets are transferred acquires substantially all of
the assets of the transferor of such assets; and
I.R.C. § 354(b)(1)(B) —
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.
I.R.C. § 354(b)(2) Cross Reference —
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.
I.R.C. § 354(c) Certain Railroad Reorganizations —
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.
I.R.C. § 354(d) —
[Repealed-- 1990 Rev. Act, sec. 11801(c)(8)(D)]
(Aug. 16, 1954, ch. 736, 68A Stat. 112; Mar. 31, 1976,
Pub. L. 94-253, Sec. 1(c), 90 Stat. 296; Oct. 17, 1978, Pub. L. 95-473,
Sec. 2(a)(2)(F), 92 Stat. 1465; Dec. 24, 1980, Pub. L. 96-589, Sec. 4(e)(1), (h)(1), 6(i)(2), 94 Stat. 3403, 3404, 3410; Nov. 5, 1990, Pub. L. 101-508, title XI, Sec. 11801(c)(8)(D), 104 Stat. 1388-524; Dec. 29, 1995, Pub. L. 104-88, title III, Sec. 304(c), 109 Stat. 944; Pub. L. 105-34, title X, Sec. 1014(b),
(e), Aug. 5, 1997, 111 Stat 788; Pub. L. 105-206, title VI, Sec. 6010(e)(2), July 22, 1998, 112 Stat 685.)
BACKGROUND NOTES
AMENDMENTS
1998 - Subsec. (a)(2)(C)(ii). Pub. L. 105-206, Sec. 6010(e)(2), amended clause (ii) by adding subclause (III).
1997 - Subsec. (a)(2)(B). Pub. L. 105-34, Sec. 1014(e)(1), amended subpar. (B) by inserting “(including nonqualified preferred stock, as defined
in section 351(g)(2))” after “stock”.
Subsec. (a)(2)(C). Pub. L. 105-34, Sec. 1014(b), added subpar. (C).
Subsec. (a)(3)(A). Pub. L. 105-34, Sec. 1014(e)(2), inserted “nonqualified preferred stock and” after “including”.
1995 - Subsec. (c). Pub. L. 104-88 struck ‘or approved by the Interstate Commerce Commission under subchapter IV of
chapter 113 of title 49,’.
1990 - Subsec. (d). Pub. L. 101-508 struck out subsec. (d)
‘Exchanges under the final system plan for ConRail’ which read as follows: ‘No gain
or loss shall be recognized if stock or securities in a corporation are, in pursuance
of an exchange to which paragraph
(1) or (2) of section 374(c) applies, exchanged solely for stock of the Consolidated
Rail Corporation, securities of such Corporation, certificates of value of the United
States Railway Association, or any combination thereof.’
1980 - Subsec. (a)(2). Pub. L. 96-589, Sec. 4(e)(1), redesignated existing pars. (A) and (B) as par. (A)(i), (ii), and added par. (B).
Subsec. (a)(3). Pub. L. 96-589, Sec. 4(e)(1), designated existing provisions as subpar. (A), inserted provisions excluding property
to which paragraph
(2)(B) applies, and added subpar. (B).
Subsec. (b). Pub. L. 96-589, Sec. 4(h)(1), substituted ‘subparagraph (D) or
(G) of section 368(a)(1)’ for ‘section 368(a)(1)(D)’, wherever appearing.
Subsec. (c). Pub. L. 96-589, Sec. 6(i)(2), substituted ‘confirmed under section 1173 of title 11 of the United States Code,
or approved by the Interstate Commerce Commission’ for ‘approved by the Interstate
Commerce Commission under section 77 of the Bankruptcy Act, or’.
1978 - Subsec. (c). Pub. L. 95-473 substituted ‘subchapter IV of chapter 113 of title 49’ for ‘section 20b of the Interstate
Commerce Act’.
1976 - Subsec. (d). Pub. L. 94-253 added subsec. (d).
EFFECTIVE DATE OF 1998 AMENDMENTS
Amendment by Sec. 6010(e)(2) of Pub. L. 105-206 applicable as if included in the amendments made by the Taxpayer Relief Act of 1997
to which it relates [Effective Date of Pub. L. 105-34, Sec. 1014: Transactions after June 8, 1997, but see transition rule set forth below].
EFFECTIVE DATE OF 1997 AMENDMENTS
Amendments by Sec. 1014 of Pub. L. 105-34 applicable to transactions after June 8, 1997. Sec. 1014(f)(2) provided the following
transition rule:
“(2) Transition rule.--The amendments made by this section shall not apply to any
transaction after June 8, 1997, if such transaction is--
(A) made pursuant to a written agreement which was binding on such date and at all
times thereafter,
(B) described in a ruling request submitted to the Internal Revenue Service on or
before such date, or
(C) described on or before such date in a public announcement or in a filing with
the Securities and Exchange Commission required solely by reason of the transaction.”
EFFECTIVE DATE OF 1995 AMENDMENT
Amendment by section 304 of Pub. L. 104-88, effective on January 1, 1996.
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by section 4(e)(1) of Pub. L. 96-589 applicable to bankruptcy cases or similar judicial proceedings commencing after Dec.
31, 1980, and to exchanges which occur after Dec. 31, 1980, and which do not occur
in a bankruptcy case or similar judicial proceeding or in a proceeding under Title
11, Bankruptcy, commenced on or before Dec. 31, 1980, with an exception permitting
the debtor to make the amendment applicable to such cases, proceedings or exchanges
commencing after Sept. 30, 1979, see section 7(c), (f) of Pub. L. 96-589, set out as a note under section 108 of this title.
Amendment by section 4(h)(1) of Pub. L. 96-589 applicable to bankruptcy cases or similar judicial proceedings commencing after Dec.
31, 1980, with an exception permitting the debtor to make the amendment applicable
to such cases or proceedings commencing after Sept. 30, 1979, see section 7(c)(1),
(f) of Pub. L. 96-589, set out as a note under section 108 of this title.
Amendment by section 6(i)(2) of Pub. L. 96-589 effective Oct. 1, 1979, but not applicable to any proceeding under Title 11 commenced
before Oct. 1, 1979, see section 7(e) of Pub. L. 96-589, set out as a note under section 108 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 2 of Pub. L. 94-253 provided that: ‘The amendments made by section 1 (amending this section and sections
356, 358, and 374 of this title) shall apply to taxable years ending after March 31,
1976.’
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be construed to affect treatment of certain transactions occurring, property acquired,
or items of income, loss, deduction, or credit taken into account prior to Nov. 5,
1990, for purposes of determining liability for tax for periods ending after Nov.
5, 1990, see section 11821(b) of Pub. L. 101-508, set out as a note under section 29 of this title.
ABOLITION OF UNITED STATES RAILWAY ASSOCIATION AND TRANSFER OF FUNCTIONS
United States Railway Association abolished effective Apr. 1, 1987, all powers, duties,
rights, and obligations of Association relating to Consolidated Rail Corporation under
Regional Rail Reorganization Act of 1973 (45 U.S.C. 701 et seq.) transferred to Secretary of Transportation on Jan. 1, 1987, and any securities
of Corporation held by Association transferred to Secretary of Transportation on Oct.
21, 1986, see section 1341 of Title 45, Railroads.
