Title 26, Internal Revenue CodeRelease 119-110
§269 Acquisitions Made to Evade or Avoid Income Tax
Title 26 › Subtitle A — Income Taxes › CHAPTER 1 — NORMAL TAXES AND SURTAXES › Subchapter B — Computation of Taxable Income › PART IX — ITEMS NOT DEDUCTIBLE › § 269
Summary
The Secretary may refuse to let a person or company use a tax deduction, credit, or other tax benefit when the main reason they bought control of a corporation or bought another corporation’s property was to avoid federal income tax by getting a benefit they would not otherwise have. Control means owning at least 50 percent of the voting power or 50 percent of the value of a company’s stock. If one corporation makes a “qualified stock purchase” of another (terms as defined in section 338), does not make a section 338 election, and then liquidates the bought company within 2 years mainly to avoid tax, the Secretary may also deny the tax benefit. The Secretary can allow part of a denied benefit, or reassign income and deductions among the companies, to the extent that doing so will not allow the tax avoidance.
Full Legal Text
Title 26, §269
Internal Revenue Code, Source: USLM XML via OLRC
(a)In general
If—
(1)any person or persons acquire, directly or indirectly, control of a corporation, or
(2)any corporation acquires, directly or indirectly, property of another corporation, not controlled, directly or indirectly, immediately before such acquisition, by such acquiring corporation or its stockholders, the basis of which property, in the hands of the acquiring corporation, is determined by reference to the basis in the hands of the transferor corporation,
and the principal purpose for which such acquisition was made is evasion or avoidance of Federal income tax by securing the benefit of a deduction, credit, or other allowance which such person or corporation would not otherwise enjoy, then the Secretary may disallow such deduction, credit, or other allowance. For purposes of paragraphs (1) and (2), control means the ownership of stock possessing at least 50 percent of the total combined voting power of all classes of stock entitled to vote or at least 50 percent of the total value of shares of all classes of stock of the corporation.
(b)Certain liquidations after qualified stock purchases
(1)In general
If—
(A)there is a qualified stock purchase by a corporation of another corporation,
(B)an election is not made under section 338 with respect to such purchase,
(C)the acquired corporation is liquidated pursuant to a plan of liquidation adopted not more than 2 years after the acquisition date, and
(D)the principal purpose for such liquidation is the evasion or avoidance of Federal income tax by securing the benefit of a deduction, credit, or other allowance which the acquiring corporation would not otherwise enjoy,
then the Secretary may disallow such deduction, credit, or other allowance.
(2)Meaning of terms
For purposes of paragraph (1), the terms “qualified stock purchase” and “acquisition date” have the same respective meanings as when used in section 338.
(c)Power of Secretary to allow deduction, etc., in part
In any case to which subsection (a) or (b) applies the Secretary is authorized—
(1)to allow as a deduction, credit, or allowance any part of any amount disallowed by such subsection, if he determines that such allowance will not result in the evasion or avoidance of Federal income tax for which the acquisition was made; or
(2)to distribute, apportion, or allocate gross income, and distribute, apportion, or allocate the deductions, credits, or allowances the benefit of which was sought to be secured, between or among the corporations, or properties, or parts thereof, involved, and to allow such deductions, credits, or allowances so distributed, apportioned, or allocated, but to give effect to such allowance only to such extent as he determines will not result in the evasion or avoidance of Federal income tax for which the acquisition was made; or
(3)to exercise his powers in part under paragraph (1) and in part under paragraph (2).
Legislative History
Notes & Related Subsidiaries
Editorial Notes
Amendments
2014—Subsec. (a). Pub. L. 113–295 struck out “or acquired on or after October 8, 1940,” after “persons acquire,” in par. (1) and after “corporation acquires,” in par. (2). 1984—Subsecs. (b), (c). Pub. L. 98–369 added subsec. (b), redesignated former subsec. (b) as (c) and inserted reference to subsec. (b). 1976—Subsecs. (a), (b). Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary” wherever appearing. Subsec. (c). Pub. L. 94–455, § 1901(a)(38), struck out subsec. (c) relating to presumptions in the case of disproportionate purchase price. 1964—Subsec. (a). Pub. L. 88–272 substituted “the Secretary or his delegate may disallow such deduction, credit, or other allowance” for “such deduction, credit or other allowance shall not be allowed”.
Statutory Notes and Related Subsidiaries
Effective Date
of 2014 AmendmentAmendment by Pub. L. 113–295 effective Dec. 19, 2014, subject to a
Savings Provision
, see section 221(b) of Pub. L. 113–295, set out as a note under section 1 of this title.
Effective Date
of 1984 Amendment Pub. L. 98–369, div. A, title VII, § 712(k)(8)(C), July 18, 1984, 98 Stat. 952, provided that: “The
Amendments
made by this paragraph [amending this section] shall apply to liquidations after October 20, 1983, in taxable years ending after such date.”
Effective Date
of 1964 Amendment Pub. L. 88–272, title II, § 235(d), Feb. 26, 1964, 78 Stat. 127, provided that: “The
Amendments
made by subsections (a) and (c) [enacting sections 1561 to 1563 of this title and amending this section and section 441 and 802 of this title] shall apply with respect to taxable years ending after
December 31, 1963. The amendment made by subsection (b) [amending section 1551 of this title] shall apply with respect to transfers made after
June 12, 1963.”
Reference
Citations & Metadata
Citation
26 U.S.C. § 269
Title 26, Internal Revenue Code
Last Updated
Sep 22, 2026
Release point: 119-110