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SEC. 304(a). Treatment of Certain Stock
Purchases.--
(1) Acquisition by related corporation (other
than subsidiary).--For purposes of sections 302
and 303, if--
(A) one or more persons are in control
of each of two corporations, and
(B) in return for property, one of the
corporations acquires stock in the other
corporation from the person (or persons) so
in control,
then (unless paragraph (2) applies) such property
shall be treated as a distribution in redemption
of the stock of the corporation acquiring such
stock. To the extent that such distribution is
treated as a distribution to which section 301
applies, the stock so acquired shall be treated as
having been transferred by the person from whom
acquired, and as having been received by the
corporation acquiring it, as a contribution to the
capital of such corporation.
Accordingly, there are two elements required for a
transaction to fall within the purview of section 304(a)(1).
First, the transferor(s) of the issuing corporation’s stock must
be in control of both the issuing and the acquiring corporations.
Second, the issuing corporation’s stock must be transferred to
the acquiring corporation in exchange for property. Transfers so
described in section 304(a)(1) are often referred to as “brother-
sister” stock sales; section 304(a)(2) offers analogous rules for
“parent-subsidiary” sales.
To guide in evaluating the above two requisites, section 304
and related sections set forth several pertinent definitions.
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Last modified: May 25, 2011