§1059 Corporate Shareholder’s Basis in Stock Reduced by Nontaxed Portion of Extraordinary Dividends

A prior section 1059 was renumbered section 1063 of this title.

2018—Subsec. (d)(3). Pub. L. 115–141 substituted “and there shall not be taken into account any day which is more than 2 years after the date on which such share becomes ex-dividend.” for “; except that ‘2 years’ shall be substituted for the number of days specified in subparagraph (B) of section 246(c)(3).” 2017—Subsec. (b)(2)(B). Pub. L. 115–97 substituted “245, or 245A” for “or 245”. 2014—Subsec. (b)(2)(B). Pub. L. 113–295 struck out “, 244,” after “243”. 1998—Subsec. (g)(1). Pub. L. 105–206 substituted “, in the case of stock held by pass-thru entities, and in the case of consolidated groups” for “and in the case of stock held by pass-thru entities”. 1997—Subsec. (a)(2). Pub. L. 105–34, § 1011(a), amended heading and text of par. (2) generally. Prior to amendment, text read as follows: “In addition to any gain recognized under this chapter, there shall be treated as gain from the sale or exchange of any stock for the taxable year in which the sale or disposition of such stock occurs an amount equal to the aggregate nontaxed portions of any extraordinary dividends with respect to such stock which did not reduce the basis of such stock by reason of the limitation on reducing basis below zero.” Subsec. (d)(1). Pub. L. 105–34, § 1011(c), amended heading and text of par. (1) generally. Prior to amendment, text read as follows: “(A) In general.—Except as provided in subparagraph (B), any reduction in basis under subsection (a)(1) shall occur immediately before any sale or disposition of the stock. “(B) Special rule for computing extraordinary dividend.—In determining a taxpayer’s adjusted basis for purposes of subsection (c)(1), any reduction in basis under subsection (a)(1) by reason of a prior distribution which was an extraordinary dividend shall be treated as occurring at the beginning of the ex-dividend date for such distribution.” Subsec. (d)(3). Pub. L. 105–34, § 1604(d)(1), substituted “subsection (a)” for “subsection (a)(2)”. Subsec. (e)(1). Pub. L. 105–34, § 1011(b), amended heading and text of par. (1) generally. Prior to amendment, text read as follows: “Except as otherwise provided in

, in the case of any redemption of stock which is— “(A) part of a partial liquidation (within the meaning of section 302(e)) of the redeeming corporation, or “(B) not pro rata as to all shareholders, any amount treated as a dividend under section 301 with respect to such redemption shall be treated as an extraordinary dividend to which paragraphs (1) and (2) of subsection (a) apply without regard to the period the taxpayer held such stock.” Subsec. (e)(1)(A)(iii). Pub. L. 105–34, § 1013(b), amended cl. (iii) generally. Prior to amendment, cl. (iii) read as follows: “which would not have been treated (in whole or in part) as a dividend if any options had not been taken into account under section 318(a)(4).” 1989—Subsecs. (f), (g). Pub. L. 101–239 added subsecs. (f) and (g) and struck out former subsec. (f) which read as follows: “

.—The Secretary shall prescribe such

as may be appropriate to carry out the purposes of this section, including

providing for the application of this section in the case of stock dividends, stock splits, reorganizations, and other similar transactions and in the case of stock held by pass-thru entities.” 1988—Subsec. (d)(5). Pub. L. 100–647, § 1006(c)(2), inserted “amount or” after “agrees to the”. Pub. L. 100–647, § 1006(c)(1), redesignated par. (6) as (5) and struck out former par. (5) which related to extension to certain property distributions. Subsec. (d)(6). Pub. L. 100–647, § 1006(c)(3), amended par. (6) generally. Prior to amendment, par. (6) read as follows: “Subsection (a) shall not apply to any extraordinary dividend with respect to any share of stock of a corporation if— “(A) such stock was held by the taxpayer during the entire period such corporation (and any precedessor [sic] corporation) was in existence, “(B) except as provided in

, the only earnings and profits of such corporation were earnings and profits accumulated by such corporation (or any predecessor corporation) during such period, and “(C) the application of this paragraph to such dividend is not inconsistent with the purposes of this section.” Pub. L. 100–647, § 1006(c)(1), redesignated par. (7) as (6). Former par. (6) redesignated (5). Subsec. (d)(7). Pub. L. 100–647, § 1006(c)(1), redesignated par. (7) as (6). Subsec. (e)(1). Pub. L. 100–647, § 1006(c)(4), substituted “to which paragraphs (1) and (2) of subsection (a) apply without regard to the period the taxpayer held such stock” for “for purposes of this section (without regard to the holding period of the stock)”. Subsec. (e)(2). Pub. L. 100–647, § 1006(c)(5), amended par. (2) generally. Prior to amendment, par. (2) read as follows: “Except as provided in

, the term ‘extraordinary dividend’ shall not include any qualifying dividend (within the meaning of section 243(b)(1)).” Subsec. (e)(3)(A). Pub. L. 100–647, § 1006(c)(6), amended subpar. (A) generally. Prior to amendment, subpar. (A) read as follows: “A qualified preferred dividend shall be treated as an extraordinary dividend— “(i) only if the actual rate of return of the taxpayer on the stock with respect to which such dividend was paid exceeds 15 percent, or “(ii) if clause (i) does not apply, and the taxpayer disposes of such stock before the taxpayer has held such stock for more than 5 years, only to the extent the actual rate of return exceeds the stated rate of return.” Subsec. (e)(3)(B). Pub. L. 100–647, § 1006(c)(8)(A), which directed the amendment of subpar. (B) “by striking out ‘subparagraph (A)’ and the material preceding clause (i) and inserting in lieu thereof ‘this paragraph’ ”, was executed by striking out “subparagraph (A)” in the material preceding clause (i) and inserting in lieu thereof “this paragraph”, to reflect the probable intent of Congress. Subsec. (e)(3)(B)(ii). Pub. L. 100–647, § 1006(c)(8)(B), substituted “clause (i)(II)” for “subparagraph (B)(i)(II)”. Subsec. (e)(3)(C)(i). Pub. L. 100–647, § 1006(c)(7), inserted “fixed” before “dividend payable” in introductory provisions and inserted at end “Such term shall not include any dividend payable with respect to any share of stock if the actual rate of return on such stock exceeds 15 percent.” Subsec. (f). Pub. L. 100–647, § 1006(c)(9), inserted “and in the case of stock held by pass-thru entities” after “other similar transactions”. 1986—Subsec. (a). Pub. L. 99–514, § 614(a)(1), amended subsec. (a) generally. Prior to amendment, subsec. (a) read as follows: “If any corporation— “(1) receives an extraordinary dividend with respect to any share of stock, and “(2) sells or otherwise disposes of such stock before such stock has been held for more than 1 year, the basis of such corporation in such stock shall be reduced by the nontaxed portion of such dividend. If the nontaxed portion of such dividend exceeds such basis, such excess shall be treated as gain from the sale or exchange of such stock.” Subsec. (c)(1). Pub. L. 99–514, § 614(c)(2), struck out “(determined without regard to this section)” after “such share of stock”. Subsec. (c)(4). Pub. L. 99–514, § 614(b), added par. (4). Subsec. (d)(1). Pub. L. 99–514, § 614(c)(1), amended par. (1) generally. Prior to amendment, par. (1) read as follows: “Any reduction in basis under subsection (a) by reason of any distribution which is an extraordinary dividend shall occur at the beginning of the ex-dividend date for such distribution.” Subsec. (d)(3). Pub. L. 99–514, § 614(a)(3), substituted “2 years” for “1 year”. Subsec. (d)(6). Pub. L. 99–514, § 614(a)(2), added par. (6). Subsec. (d)(7). Pub. L. 99–514, § 614(d), added par. (7). Subsecs. (e), (f). Pub. L. 99–514, § 614(e), added subsec. (e) and redesignated former subsec. (e) as (f).

of 2017 AmendmentAmendment by Pub. L. 115–97 applicable to distributions made after Dec. 31, 2017, see section 14101(f) of Pub. L. 115–97, set out as an

note under section 245A of this title.

of 2014 AmendmentAmendment by Pub. L. 113–295 not applicable to preferred stock issued before Oct. 1, 1942 (determined in the same manner as under section 247 of this title as in effect before its repeal by Pub. L. 113–295), see section 221(a)(41)(K) of Pub. L. 113–295, set out as a note under section 172 of this title. Except as otherwise provided in section 221(a) of Pub. L. 113–295, amendment by Pub. L. 113–295 effective Dec. 19, 2014, subject to a

, see section 221(b) of Pub. L. 113–295, set out as a note under section 1 of this title.

of 1998 AmendmentAmendment by Pub. L. 105–206 effective, except as otherwise provided, as if included in the provisions of the Taxpayer Relief Act of 1997, Pub. L. 105–34, to which such amendment relates, see section 6024 of Pub. L. 105–206, set out as a note under section 1 of this title.

of 1997 Amendment Pub. L. 105–34, title X, § 1011(d), Aug. 5, 1997, 111 Stat. 913, provided that: “(1) In general.—The

made by this section [amending this section] shall apply to distributions after May 3, 1995. “(2) Transition rule.—The

of 1988 AmendmentAmendment 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.

of 1986 Amendment Pub. L. 99–514, title VI, § 614(f), Oct. 22, 1986, 100 Stat. 2254, provided that: “(1) In general.—Except as provided in this subsection, the

Pub. L. 98–369, div. A, title I, § 53(e), July 18, 1984, 98 Stat. 568, as amended by Pub. L. 99–514, § 2, title XVIII, § 1804(b)(2), Oct. 22, 1986, 100 Stat. 2095, 2798, provided that: “(1) In general.—Except as provided in this subsection, the

made by this section [enacting this section and amending section 246, 1016, and 7701 of this title] shall apply to distributions after March 1, 1984, in taxable years ending after such date. “(2) Subsection (b).—The