- 48 -
on the distribution of property in redemption of its stock. S. Rept.
100-445, at 66 (1988); see also Eustice & Kuntz, Federal Income
Taxation of S Corporations, par. 8.02[1][a], at 8-24, par. 13.06[2],
at 13-40 (3d ed. 1993).
The distribution of SIC stock to Arnold in exchange for his stock
in petitioner was a distribution of property under section 317(a),
amounting to a redemption by petitioner of its stock held by Arnold.26
Sec. 317(b).27 Section 311(a), as enacted by the 1954 Code, codified
the rule of General Utils. & Operating Co. v. Helvering, 296 U.S. 200
(1935), by providing that a distributing corporation generally
recognizes no gain or loss on distributions of property with respect
to its stock. However, section 631(c) of the Tax Reform Act of 1986
(TRA), Pub. L. 99-514, 100 Stat. 2272, amended section 311(b) so as to
effectively repeal the rule of General Utilities where there is a gain
on distributions of property with respect to stock. Section 311(b)
now provides that a corporation recognizes gain to the extent that the
fair market value of the distributed property exceeds its adjusted
basis in the hands of the distributing corporation. Petitioner
26 Stock redemptions by S corporations are governed by the
provisions of subch. C. Sec. 1371(a)(1); S. Rept. 100-445, at 66
(1988); see also Eustice & Kuntz, Federal Income Taxation of S
Corporations, par. 8.02[1][a], at 8-24, par. 13.06[2], at 13-40
(3d ed. 1993) .
27 Sec. 317(b) provides:
For purposes of this part, stock shall be treated as
redeemed by a corporation if the corporation acquires
its stock from a shareholder in exchange for property,
whether or not the stock so acquired is cancelled,
retired, or held as treasury stock.
Page: Previous 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 NextLast modified: May 25, 2011