§ 305. Distributions of stock and stock rights
(a)
General rule
Except as otherwise provided in this section, gross income does not include the amount of any distribution of the stock of a corporation made by such corporation to its shareholders with respect to its stock.
(b)
Exceptions
Subsection (a) shall not apply to a distribution by a corporation of its stock, and the distribution shall be treated as a distribution of property to which section
301 applies—
(1)
Distributions in lieu of money
If the distribution is, at the election of any of the shareholders (whether exercised before or after the declaration thereof), payable either—
(2)
Disproportionate distributions
If the distribution (or a series of distributions of which such distribution is one) has the result of—
(3)
Distributions of common and preferred stock
If the distribution (or a series of distributions of which such distribution is one) has the result of—
(4)
Distributions on preferred stock
If the distribution is with respect to preferred stock, other than an increase in the conversion ratio of convertible preferred stock made solely to take account of a stock dividend or stock split with respect to the stock into which such convertible stock is convertible.
(c)
Certain transactions treated as distributions
For purposes of this section and section
301, the Secretary shall prescribe regulations under which a change in conversion ratio, a change in redemption price, a difference between redemption price and issue price, a redemption which is treated as a distribution to which section
301 applies, or any transaction (including a recapitalization) having a similar effect on the interest of any shareholder shall be treated as a distribution with respect to any shareholder whose proportionate interest in the earnings and profits or assets of the corporation is increased by such change, difference, redemption, or similar transaction. Regulations prescribed under the preceding sentence shall provide that—
(1)
where the issuer of stock is required to redeem the stock at a specified time or the holder of stock has the option to require the issuer to redeem the stock, a redemption premium resulting from such requirement or option shall be treated as reasonable only if the amount of such premium does not exceed the amount determined under the principles of section
1273
(a)(3),
(d)
Definitions
(e)
Treatment of purchaser of stripped preferred stock
(1)
In general
If any person purchases after April 30, 1993, any stripped preferred stock, then such person, while holding such stock, shall include in gross income amounts equal to the amounts which would have been so includible if such stripped preferred stock were a bond issued on the purchase date and having original issue discount equal to the excess, if any, of—
The preceding sentence shall also apply in the case of any person whose basis in such stock is determined by reference to the basis in the hands of such purchaser.
(2)
Basis adjustments
Appropriate adjustments to basis shall be made for amounts includible in gross income under paragraph (1).
(3)
Tax treatment of person stripping stock
If any person strips the rights to 1 or more dividends from any stock described in paragraph (5)(B) and after April 30, 1993, disposes of such dividend rights, for purposes of paragraph (1), such person shall be treated as having purchased the stripped preferred stock on the date of such disposition for a purchase price equal to such person’s adjusted basis in such stripped preferred stock.
(4)
Amounts treated as ordinary income
Any amount included in gross income under paragraph (1) shall be treated as ordinary income.
(5)
Stripped preferred stock
For purposes of this subsection—
(f)
Cross references
For special rules—
(1)
Relating to the receipt of stock and stock rights in corporate organizations and reorganizations, see part III (sec.
351 and following).