Title 26 — Internal Revenue CodeRelease 119-73
§337 Nonrecognition for property distributed to parent in complete liquidation of subsidiary
Title 26 › Subtitle Subtitle A— - Income Taxes › Chapter CHAPTER 1— - NORMAL TAXES AND SURTAXES › Subchapter Subchapter C— - Corporate Distributions and Adjustments › Part PART II— - CORPORATE LIQUIDATIONS › Subpart Subpart B— - Effects on Corporation › § 337
Summary
When a parent company owns at least 80% of a subsidiary and the subsidiary is completely liquidated under section 332, the subsidiary does not have to record a gain or loss when it gives property to the parent. If the parent is a tax-exempt group (not certain cooperatives) and the subsidiary owed the parent when the liquidation plan was adopted, that no-gain/no-loss rule usually does not apply. An exception exists for organizations covered by section 511(a)(2) that use the property in an activity taxed under section 511(a) right after the distribution. If such an organization later sells the property or stops using it in that taxable activity, it must include any previously untaxed gain in its unrelated business taxable income. The term "80-percent distributee" means only the corporation that meets the 80% test in section 332(b), without using consolidated return rules. The Treasury must write rules to prevent abuse and to coordinate this treatment with foreign tax rules.
Full Legal Text
Title 26, §337
Internal Revenue Code — Source: USLM XML via OLRC
(a)No gain or loss shall be recognized to the liquidating corporation on the distribution to the 80-percent distributee of any property in a complete liquidation to which section 332 applies.
(b)(1)If—
(A)a corporation is liquidated in a liquidation to which section 332 applies, and
(B)on the date of the adoption of the plan of liquidation, such corporation was indebted to the 80-percent distributee,
(2)(A)Except as provided in subparagraph (B), paragraph (1) and subsection (a) shall not apply where the 80-percent distributee is an organization (other than a cooperative described in section 521) which is exempt from the tax imposed by this chapter.
(B)(i)Subparagraph (A) shall not apply to any distribution of property to an organization described in section 511(a)(2) if, immediately after such distribution, such organization uses such property in an activity the income from which is subject to tax under section 511(a).
(ii)If any property to which clause (i) applied is disposed of by the organization acquiring such property, notwithstanding any other provision of law, any gain (not in excess of the amount not recognized by reason of clause (i)) shall be included in such organization’s unrelated business taxable income. For purposes of the preceding sentence, if such property ceases to be used in an activity referred to in clause (i), such organization shall be treated as having disposed of such property on the date of such cessation.
(c)For purposes of this section, the term “80-percent distributee” means only the corporation which meets the 80-percent stock ownership requirements specified in section 332(b). For purposes of this section, the determination of whether any corporation is an 80-percent distributee shall be made without regard to any consolidated return regulation.
(d)The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of the amendments made by subtitle D of title VI of the Tax Reform Act of 1986, including—
(1)regulations to ensure that such purposes may not be circumvented through the use of any provision of law or regulations (including the consolidated return regulations and part III of this subchapter) or through the use of a regulated investment company, real estate investment trust, or tax-exempt entity, and
(2)regulations providing for appropriate coordination of the provisions of this section with the provisions of this title relating to taxation of foreign corporations and their shareholders.
Legislative History
Notes & Related Subsidiaries
Editorial Notes
References in Text
The Tax Reform Act of 1986, referred to in subsec. (d), is Pub. L. 99–514, Oct. 22, 1986, 100 Stat. 2085. Subtitle D (§§ 631–634) of title VI of the Tax Reform Act of 1986 enacted section 336 and 337 of this title, amended section 26, 311, 312, 332, 334, 338, 341, 346, 367, 453, 453B, 467, 852, 897, 1056, 1248, 1255, 1276, 1363, 1366, 1374, and 1375 of this title, and repealed former section 333, 336, and 337 of this title. For complete classification of this Act to the Code, see Tables.
Prior Provisions
A prior section 337, acts Aug. 16, 1954, ch. 736, 68A Stat. 106; Sept. 2, 1958, Pub. L. 85–866, title I, § 19, 72 Stat. 1615; Oct. 4, 1976, Pub. L. 94–455, title XIX, §§ 1901(a)(46), 1906(b)(13)(A), title XXI, § 2118(a), 90 Stat. 1772, 1834, 1912; Nov. 6, 1978, Pub. L. 95–600, title VII, § 701(i)(1), 92 Stat. 2904; Nov. 10, 1978, Pub. L. 95–628, § 4(a), 92 Stat. 3628; Apr. 2, 1980, Pub. L. 96–223, title IV, § 403(b)(2)(A), 94 Stat. 304; Oct. 19, 1980, Pub. L. 96–471, § 2(c)(2), 94 Stat. 2254; Dec. 24, 1980, Pub. L. 96–589, § 5(c), 94 Stat. 3405; Sept. 3, 1982, Pub. L. 97–248, title II, § 224(c)(5), (6), 96 Stat. 489; Oct. 22, 1986, Pub. L. 99–514, title XVIII, § 1804(e)(7)(A), 100 Stat. 2803, related to gain or loss on sales or exchanges in connection with certain liquidations, prior to repeal by Pub. L. 99–514, § 631(a).
Amendments
1988—Subsec. (b)(2)(B)(i). Pub. L. 100–647, § 1006(e)(4)(A), (B), substituted “described in section 511(a)(2)” for “described in section 511(a)(2) or 511(b)(2)” and “in an activity the income from which is subject to tax under section 511(a)” for “in an unrelated trade or business (as defined in section 513)”. Subsec. (b)(2)(B)(ii). Pub. L. 100–647, § 1006(e)(4)(C), substituted “an activity referred to in clause (i)” for “an unrelated trade or business of such organization”. Subsec. (d). Pub. L. 100–647, § 1006(e)(5)(A), in introductory provisions, substituted “
Amendments
made by subtitle D of title VI of the Tax Reform Act of 1986” for “
Amendments
made to this subpart by the Tax Reform Act of 1986”, and in par. (1), substituted “this subchapter) or through the use of a regulated investment company, real estate investment trust, or tax-exempt entity” for “this subchapter)”. 1987—Subsec. (c). Pub. L. 100–203 inserted at end “For purposes of this section, the determination of whether any corporation is an 80-percent distributee shall be made without regard to any consolidated return regulation.”
Statutory Notes and Related Subsidiaries
Effective Date
of 1988 Amendment Pub. L. 100–647, title I, § 1006(e)(5)(B), Nov. 10, 1988, 102 Stat. 3401, provided that: “The amendment made by subparagraph (A)(ii) [amending this section] shall not apply to any reorganization if before June 10, 1987— “(i) the board of directors of a party to the reorganization adopted a resolution to solicit shareholder approval for the transaction, or “(ii) the shareholders or the board of directors of a party to the reorganization approved the transaction.” 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 1987 AmendmentAmendment by Pub. L. 100–203 applicable to distributions or transfers after Dec. 15, 1987, with exceptions for certain distributee corporations and distributions covered by prior transition rule, see section 10223(d) of Pub. L. 100–203, set out as a note under section 304 of this title.
Effective Date
Section applicable to any distribution in complete liquidation, and any sale or exchange, made by a corporation after July 31, 1986, unless such corporation is completely liquidated before Jan. 1, 1987, any transaction described in section 338 of this title for which the acquisition date occurs after Dec. 31, 1986, and any distribution, not in complete liquidation, made after Dec. 31, 1986, with exceptions and special and transitional rules, see section 633 of Pub. L. 99–514, set out as a note under section 336 of this title.
Reference
Citations & Metadata
Citation
26 U.S.C. § 337
Title 26 — Internal Revenue Code
Last Updated
Apr 6, 2026
Release point: 119-73