§ 336. Gain or loss recognized on property distributed in complete liquidation
(a)
General rule
Except as otherwise provided in this section or section
337, gain or loss shall be recognized to a liquidating corporation on the distribution of property in complete liquidation as if such property were sold to the distributee at its fair market value.
(b)
Treatment of liabilities
If any property distributed in the liquidation is subject to a liability or the shareholder assumes a liability of the liquidating corporation in connection with the distribution, for purposes of subsection (a) and section
337, the fair market value of such property shall be treated as not less than the amount of such liability.
(d)
Limitations on recognition of loss
(1)
No loss recognized in certain distributions to related persons
(A)
In general
No loss shall be recognized to a liquidating corporation on the distribution of any property to a related person (within the meaning of section
267) if—
(B)
Disqualified property
For purposes of subparagraph (A), the term “disqualified property” means any property which is acquired by the liquidating corporation in a transaction to which section
351 applied, or as a contribution to capital, during the 5-year period ending on the date of the distribution. Such term includes any property if the adjusted basis of such property is determined (in whole or in part) by reference to the adjusted basis of property described in the preceding sentence.
(2)
Special rule for certain property acquired in certain carryover basis transactions
(A)
In general
For purposes of determining the amount of loss recognized by any liquidating corporation on any sale, exchange, or distribution of property described in subparagraph (B), the adjusted basis of such property shall be reduced (but not below zero) by the excess (if any) of—
(B)
Description of property
(i)
In general
For purposes of subparagraph (A), property is described in this subparagraph if—
(I)
such property is acquired by the liquidating corporation in a transaction to which section
351 applied or as a contribution to capital, and
(II)
the acquisition of such property by the liquidating corporation was part of a plan a principal purpose of which was to recognize loss by the liquidating corporation with respect to such property in connection with the liquidation.
Other property shall be treated as so described if the adjusted basis of such other property is determined (in whole or in part) by reference to the adjusted basis of property described in the preceding sentence.
(ii)
Certain acquisitions treated as part of plan
For purposes of clause (i), any property described in clause (i)(I) acquired by the liquidated corporation after the date 2 years before the date of the adoption of the plan of complete liquidation shall, except as provided in regulations, be treated as acquired as part of a plan described in clause (i)(II).
(C)
Recapture in lieu of disallowance
The Secretary may prescribe regulations under which, in lieu of disallowing a loss under subparagraph (A) for a prior taxable year, the gross income of the liquidating corporation for the taxable year in which the plan of complete liquidation is adopted shall be increased by the amount of the disallowed loss.
(3)
Special rule in case of liquidation to which section
332 applies
In the case of any liquidation to which section
332 applies, no loss shall be recognized to the liquidating corporation on any distribution in such liquidation. The preceding sentence shall apply to any distribution to the 80-percent distributee only if subsection (a) or (b)(1) of section
337 applies to such distribution.
(e)
Certain stock sales and distributions may be treated as asset transfers
Under regulations prescribed by the Secretary, if—
(1)
a corporation owns stock in another corporation meeting the requirements of section
1504
(a)(2), and
an election may be made to treat such sale, exchange, or distribution as a disposition of all of the assets of such other corporation, and no gain or loss shall be recognized on the sale, exchange, or distribution of such stock.