---
kind: "section"
citation: "26 U.S.C. § 361"
title: "26"
title_heading: "Internal Revenue Code"
number: "361"
heading: "Nonrecognition of gain or loss to corporations; treatment of distributions"
release: "119-102"
url: "https://uscodex.org/usc/26/361"
units:
  - "Subtitle A — Income Taxes"
  - "Chapter 1 — Normal Taxes and Surtaxes"
  - "Subchapter C — Corporate Distributions and Adjustments"
  - "Part III — Corporate Organizations and Reorganizations"
  - "Subpart C — Effects on Corporations"
---

# §361. Nonrecognition of gain or loss to corporations; treatment of distributions

- (a) **General rule—** No gain or loss shall be recognized to a [corporation](/usc/26/7701.md?p=a-3) if such [corporation](/usc/26/7701.md?p=a-3) is [a party to a reorganization](/usc/26/368.md?p=b) and exchanges [property](/usc/26/614.md?p=a), in pursuance of the plan of [reorganization](/usc/26/368.md?p=a-1), solely for [stock](/usc/26/7701.md?p=a-7) or [securities](/usc/26/368.md?p=a-2-F-vii) in another [corporation](/usc/26/7701.md?p=a-3) a party to the [reorganization](/usc/26/368.md?p=a-1).
- (b) **Exchanges not solely in kind—**
  - (1) **Gain—** If [subsection (a)](#a) would apply to an exchange but for the fact that the [property](/usc/26/614.md?p=a) received in exchange consists not only of [stock](/usc/26/7701.md?p=a-7) or [securities](/usc/26/368.md?p=a-2-F-vii) permitted by [subsection (a)](#a) to be received without the recognition of gain, but also of other [property](/usc/26/614.md?p=a) or money, then—
    - (A) **Property distributed—** If the [corporation](/usc/26/7701.md?p=a-3) receiving such other [property](/usc/26/614.md?p=a) or money distributes it in pursuance of the plan of [reorganization](/usc/26/368.md?p=a-1), no gain to the [corporation](/usc/26/7701.md?p=a-3) shall be recognized from the exchange, but
    - (B) **Property not distributed—** If the [corporation](/usc/26/7701.md?p=a-3) receiving such other [property](/usc/26/614.md?p=a) or money does not distribute it in pursuance of the plan of [reorganization](/usc/26/368.md?p=a-1), the gain, if any, to the [corporation](/usc/26/7701.md?p=a-3) shall be recognized.

    The amount of gain recognized under [subparagraph (B)](#b-1-B) shall not exceed the sum of the money and the fair market value of the other [property](/usc/26/614.md?p=a) so received which is not so distributed.

  - (2) **Loss—** If [subsection (a)](#a) would apply to an exchange but for the fact that the [property](/usc/26/614.md?p=a) received in exchange consists not only of [property](/usc/26/614.md?p=a) permitted by [subsection (a)](#a) to be received without the recognition of gain or loss, but also of other [property](/usc/26/614.md?p=a) or money, then no loss from the exchange shall be recognized.
  - (3) **Treatment of transfers to creditors—** For purposes of [paragraph (1)](#b-1), any transfer of the other [property](/usc/26/614.md?p=a) or money received in the exchange by the [corporation](/usc/26/7701.md?p=a-3) to its creditors in connection with the [reorganization](/usc/26/368.md?p=a-1) shall be treated as a distribution in pursuance of the plan of [reorganization](/usc/26/368.md?p=a-1). The [Secretary](/usc/26/7701.md?p=a-11-B) may prescribe such regulations as may be necessary to prevent avoidance of tax through abuse of the preceding sentence or [subsection (c)(3)](#c-3). In the case of a [reorganization](/usc/26/368.md?p=a-1) described in [section 368(a)(1)(D)](/usc/26/368.md?p=a-1-D) with respect to which [stock](/usc/26/7701.md?p=a-7) or [securities](/usc/26/368.md?p=a-2-F-vii) of the [corporation](/usc/26/7701.md?p=a-3) to which the assets are transferred are distributed in a transaction which qualifies under [section 355](/usc/26/355.md), this paragraph shall apply only to the extent that the sum of the money and the fair market value of other [property](/usc/26/614.md?p=a) transferred to such creditors does not exceed the adjusted bases of such assets transferred (reduced by the amount of the liabilities assumed (within the meaning of [section 357(c)](/usc/26/357.md?p=c))).
- (c) **Treatment of distributions—**
  - (1) **In general—** Except as provided in [paragraph (2)](#c-2), no gain or loss shall be recognized to a [corporation](/usc/26/7701.md?p=a-3) [a party to a reorganization](/usc/26/368.md?p=b) on the distribution to its [shareholders](/usc/26/543.md?p=a-4) of [property](/usc/26/614.md?p=a) in pursuance of the plan of [reorganization](/usc/26/368.md?p=a-1).
  - (2) **Distributions of appreciated property—**
    - (A) **In general—** If—
      - (i) in a distribution referred to in [paragraph (1)](#c-1), the [corporation](/usc/26/7701.md?p=a-3) distributes [property](/usc/26/614.md?p=a) other than [qualified property](#c-2-B), and
      - (ii) the fair market value of such [property](/usc/26/614.md?p=a) exceeds its adjusted basis (in the hands of the distributing [corporation](/usc/26/7701.md?p=a-3)),

      then gain shall be recognized to the distributing [corporation](/usc/26/7701.md?p=a-3) as if such [property](/usc/26/614.md?p=a) were sold to the distributee at its fair market value.

    - (B) **Qualified property—** For purposes of this subsection, the term “qualified property” means—
      - (i) any [stock](/usc/26/7701.md?p=a-7) in (or right to acquire [stock](/usc/26/7701.md?p=a-7) in) the distributing [corporation](/usc/26/7701.md?p=a-3) or obligation of the distributing [corporation](/usc/26/7701.md?p=a-3), or
      - (ii) any [stock](/usc/26/7701.md?p=a-7) in (or right to acquire [stock](/usc/26/7701.md?p=a-7) in) another [corporation](/usc/26/7701.md?p=a-3) which is a party to the [reorganization](/usc/26/368.md?p=a-1) or obligation of another [corporation](/usc/26/7701.md?p=a-3) which is such a party if such [stock](/usc/26/7701.md?p=a-7) (or right) or obligation is received by the distributing [corporation](/usc/26/7701.md?p=a-3) in the exchange.
    - (C) **Treatment of liabilities—** If any [property](/usc/26/614.md?p=a) distributed in the distribution referred to in [paragraph (1)](#c-1) is subject to a liability or the [shareholder](/usc/26/543.md?p=a-4) assumes a liability of the distributing [corporation](/usc/26/7701.md?p=a-3) in connection with the distribution, then, for purposes of [subparagraph (A)](#c-2-A), the fair market value of such [property](/usc/26/614.md?p=a) shall be treated as not less than the amount of such liability.
  - (3) **Treatment of certain transfers to creditors—** For purposes of this subsection, any transfer of [qualified property](#c-2-B) by the [corporation](/usc/26/7701.md?p=a-3) to its creditors in connection with the [reorganization](/usc/26/368.md?p=a-1) shall be treated as a distribution to its [shareholders](/usc/26/543.md?p=a-4) pursuant to the plan of [reorganization](/usc/26/368.md?p=a-1).
  - (4) **Coordination with other provisions—** [Section 311](/usc/26/311.md) and subpart B of part II of this subchapter shall not apply to any distribution referred to in [paragraph (1)](#c-1).
  - (5) **Cross reference—** For provision providing for recognition of gain in certain distributions, see [section 355(d)](/usc/26/355.md?p=d).

## Source credit

(Aug. 16, 1954, ch. 736, 68A Stat. 118; Pub. L. 99–514, title XVIII, § 1804(g)(1), Oct. 22, 1986, 100 Stat. 2805; Pub. L. 100–647, title I, § 1018(d)(5)(A), Nov. 10, 1988, 102 Stat. 3578; Pub. L. 101–508, title XI, § 11321(b), Nov. 5, 1990, 104 Stat. 1388–463; Pub. L. 108–357, title VIII, § 898(a), Oct. 22, 2004, 118 Stat. 1649; Pub. L. 109–135, title IV, § 403(jj)(1), Dec. 21, 2005, 119 Stat. 2632.)

## Notes

### Editorial Notes

### Amendments

2005—Subsec. (b)(3). Pub. L. 109–135 inserted before period at end “(reduced by the amount of the liabilities assumed (within the meaning of section 357(c)))”.

2004—Subsec. (b)(3). Pub. L. 108–357 inserted at end “In the case of a reorganization described in section 368(a)(1)(D) with respect to which stock or securities of the corporation to which the assets are transferred are distributed in a transaction which qualifies under section 355, this paragraph shall apply only to the extent that the sum of the money and the fair market value of other property transferred to such creditors does not exceed the adjusted bases of such assets transferred.”

1990—Subsec. (c)(5). Pub. L. 101–508 added par. (5).

1988—Pub. L. 100–647 substituted “corporations; treatment of distributions” for “transferor corporations; other treatment of transferor corporation; etc.” in section catchline and amended text generally, revising content and structure of section.

1986—Pub. L. 99–514 amended section generally. Prior to amendment, section related to whether gain or loss was recognized if corporation which was party to reorganization exchanged property, pursuant to plan of reorganization, for stock or securities in another corporation which was party to the reorganization or for other property or money.

### Statutory Notes and Related Subsidiaries

### Effective Date of 2005 Amendment

Amendment by Pub. L. 109–135 effective as if included in the provision of the American Jobs Creation Act of 2004, Pub. L. 108–357, to which such amendment relates, see section 403(nn) of Pub. L. 109–135, set out as a note under section 26 of this title.

### Effective Date of 2004 Amendment

Amendment by Pub. L. 108–357 applicable to transfers of money or other property, or liabilities assumed, in connection with a reorganization occurring on or after Oct. 22, 2004, see section 898(c) of Pub. L. 108–357, set out as a note under section 357 of this title.

### Effective Date of 1990 Amendment

Amendment by Pub. L. 101–508 applicable to distributions after Oct. 9, 1990, but not applicable to any distribution pursuant to a written binding contract in effect on Oct. 9, 1990, and at all times thereafter before such distribution, see section 11321(c) of Pub. L. 101–508, set out as a note under section 355 of this title.

### Effective Date of 1988 Amendment

Amendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title.

### Effective Date of 1986 Amendment

Pub. L. 99–514, title XVIII, § 1804(g)(4), Oct. 22, 1986, 100 Stat. 2806, provided that: “The amendments made by this subsection [amending this section and section 368 of this title] shall apply to plans of reorganizations adopted after the date of the enactment of this Act [Oct. 22, 1986].”

### Plan Amendments Not Required Until January 1, 1989

For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of Pub. L. 99–514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. L. 99–514, as amended, set out as a note under section 401 of this title.