Title 26, Internal Revenue CodeRelease 119-110
§332 Complete Liquidations of Subsidiaries
Title 26 › Subtitle A — Income Taxes › CHAPTER 1 — NORMAL TAXES AND SURTAXES › Subchapter C — Corporate Distributions and Adjustments › PART II — CORPORATE LIQUIDATIONS › Subpart A — Effects on Recipients › § 332
Summary
When one corporation gets property because another corporation is being completely closed down, the receiving corporation usually does not have to report a gain or loss for tax purposes — but only if certain rules are met. The receiver must have owned qualifying stock (as required by section 1504(a)(2)) on the day a plan to liquidate was adopted and must keep owning it until it gets the property. The liquidation must either be finished in the same taxable year, or be part of a planned series of transfers finished within 3 years from the end of the taxable year when the first transfer happened. If the transfer is not finished on time or the owner stops qualifying, the distributions do not count as complete liquidations. If the shareholders simply approve cancelling all stock and giving out assets, that counts as adopting a liquidation plan even if no deadline is set. The Treasury Secretary can require a bond or a waiver of the time limit for tax assessment to protect tax collection if the transfers might not finish on time. If a corporation gets a distribution from a regulated investment company or a real estate investment trust that counts as a complete liquidation, the recipient must treat as a dividend the amount equal to the distributing company’s dividends-paid deduction tied to that distribution. Special rules say that when a foreign corporation gets a distribution from an “applicable holding company” (a domestic parent that meets four listed conditions, including not existing for the full prior 5 years and holding mostly stock of group members), the usual nonrecognition rule does not apply and the distribution is treated as a property distribution under section 301. If the recipient is a controlled foreign corporation, then the distribution is treated under section 331 (nonrecognition). The Secretary must make rules to stop abuse, including saying a company isn’t “in existence” for these rules unless it runs an active business or owns a big stake in one that does.
Full Legal Text
Title 26, §332
Internal Revenue Code, Source: USLM XML via OLRC
(a)General rule
No gain or loss shall be recognized on the receipt by a corporation of property distributed in complete liquidation of another corporation.
(b)Liquidations to which section applies
For purposes of this section, a distribution shall be considered to be in complete liquidation only if—
(1)the corporation receiving such property was, on the date of the adoption of the plan of liquidation, and has continued to be at all times until the receipt of the property, the owner of stock (in such other corporation) meeting the requirements of section 1504(a)(2); and either
(2)the distribution is by such other corporation in complete cancellation or redemption of all its stock, and the transfer of all the property occurs within the taxable year; in such case the adoption by the shareholders of the resolution under which is authorized the distribution of all the assets of such corporation in complete cancellation or redemption of all its stock shall be considered an adoption of a plan of liquidation, even though no time for the completion of the transfer of the property is specified in such resolution; or
(3)such distribution is one of a series of distributions by such other corporation in complete cancellation or redemption of all its stock in accordance with a plan of liquidation under which the transfer of all the property under the liquidation is to be completed within 3 years from the close of the taxable year during which is made the first of the series of distributions under the plan, except that if such transfer is not completed within such period, or if the taxpayer does not continue qualified under paragraph (1) until the completion of such transfer, no distribution under the plan shall be considered a distribution in complete liquidation.
If such transfer of all the property does not occur within the taxable year, the Secretary may require of the taxpayer such bond, or waiver of the statute of limitations on assessment and collection, or both, as he may deem necessary to insure, if the transfer of the property is not completed within such 3-year period, or if the taxpayer does not continue qualified under paragraph (1) until the completion of such transfer, the assessment and collection of all income taxes then imposed by law for such taxable year or subsequent taxable years, to the extent attributable to property so received. A distribution otherwise constituting a distribution in complete liquidation within the meaning of this subsection shall not be considered as not constituting such a distribution merely because it does not constitute a distribution or liquidation within the meaning of the corporate law under which the distribution is made; and for purposes of this subsection a transfer of property of such other corporation to the taxpayer shall not be considered as not constituting a distribution (or one of a series of distributions) in complete cancellation or redemption of all the stock of such other corporation, merely because the carrying out of the plan involves (A) the transfer under the plan to the taxpayer by such other corporation of property, not attributable to shares owned by the taxpayer, on an exchange described in section 361, and (B) the complete cancellation or redemption under the plan, as a result of exchanges described in section 354, of the shares not owned by the taxpayer.
(c)Deductible liquidating distributions of regulated investment companies and real estate investment trusts
If a corporation receives a distribution from a regulated investment company or a real estate investment trust which is considered under subsection (b) as being in complete liquidation of such company or trust, then, notwithstanding any other provision of this chapter, such corporation shall recognize and treat as a dividend from such company or trust an amount equal to the deduction for dividends paid allowable to such company or trust by reason of such distribution.
(d)Recognition of gain on liquidation of certain holding companies
(1)In general
In the case of any distribution to a foreign corporation in complete liquidation of an applicable holding company—
(A)subsection (a) and section 331 shall not apply to such distribution, and
(B)such distribution shall be treated as a distribution of property to which section 301 applies.
(2)Applicable holding company
For purposes of this subsection: (A) In general
(B)Affiliated group
For purposes of this subsection, the term “affiliated group” has the meaning given such term by section 1504(a) (without regard to paragraph (2) of section 1504(b)).
(3)Coordination with subpart F
If the distributee of a distribution described in paragraph (1) is a controlled foreign corporation (as defined in section 957), then notwithstanding paragraph (1) or subsection (a), such distribution shall be treated as a distribution to which section 331 applies.
(4)Regulations
The Secretary shall provide such regulations as appropriate to prevent the abuse of this subsection, including regulations which provide, for the purposes of clause (iv) of paragraph (2)(A), that a corporation is not in existence for any period unless it is engaged in the active conduct of a trade or business or owns a significant ownership interest in another corporation so engaged.
Legislative History
Notes & Related Subsidiaries
Editorial Notes
Amendments
2018—Subsec. (d)(2)(B). Pub. L. 115–141 substituted “paragraph (2)” for “paragraphs (2) and (4)”. 2005—Subsec. (d)(1)(B). Pub. L. 109–135 substituted “distribution of property to which section 301 applies” for “distribution to which section 301 applies”. 2004—Subsec. (d). Pub. L. 108–357 added subsec. (d). 1998—Subsec. (b). Pub. L. 105–277, § 3001(b)(1), substituted “this section” for “subsection (a)” in introductory provisions. Subsec. (c). Pub. L. 105–277, § 3001(a), added subsec. (c). 1986—Subsec. (b)(1). Pub. L. 99–514, § 1804(e)(6)(A), amended par. (1) generally. Prior to amendment, par. (1) read as follows: “the corporation receiving such property was, on the date of the adoption of the plan of liquidation, and has continued to be at all times until the receipt of the property, the owner of stock (in such other corporation) possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote and the owner of at least 80 percent of the total number of shares of all other classes of stock (except nonvoting stock which is limited and preferred as to dividends); and either”. Subsec. (c). Pub. L. 99–514, § 631(e)(2), struck out subsec. (c) containing special rule for indebtedness of subsidiary to parent in relation to complete liquidations of subsidiaries. 1976—Subsec. (b). Pub. L. 94–455 struck out “or his delegate” after “Secretary”.
Statutory Notes and Related Subsidiaries
Effective Date
of 2004 Amendment Pub. L. 108–357, title VIII, § 893(b), Oct. 22, 2004, 118 Stat. 1647, provided that: “The amendment made by this section [amending this section] shall apply to distributions in complete liquidation occurring on or after the date of the enactment of this Act [Oct. 22, 2004].”
Effective Date
of 1998 Amendment Pub. L. 105–277, div. J, title III, § 3001(c), Oct. 21, 1998, 112 Stat. 2681–904, provided that: “The
Amendments
made by this section [amending this section and section 334 of this title] shall apply to distributions after May 21, 1998.”
Effective Date
of 1986 AmendmentAmendment by section 631(e)(2) of Pub. L. 99–514 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 an
Effective Date
note under section 336 of this title. Pub. L. 99–514, title XVIII, § 1804(e)(6)(B), Oct. 22, 1986, 100 Stat. 2803, provided that: “(i) In general.—Except as provided in clause (iii), the amendment made by subparagraph (A) [amending this section] shall apply with respect to plans of complete liquidation adopted after
March 28, 1985. “(ii) Certain distributions made after december 31, 1984.—Except as provided in clause (iii), the amendment made by subparagraph (A) shall also apply with respect to plans of complete liquidations adopted on or before
March 28, 1985, pursuant to which any distribution is made in a taxable year beginning after
December 31, 1984 (
December 31, 1983, in the case of an affiliated group to which an election under section 60(b)(7) of the Tax Reform Act of 1984 [Pub. L. 98–369, set out as a note under section 1504 of this title] applies), but only if the liquidating corporation and any corporation which receives a distribution in complete liquidation of such corporation are members of an affiliated group of corporations filing a consolidated return for the taxable year which includes the date of the distribution. “(iii) Transitional rule for affiliated groups.—The amendment made by subparagraph (A) shall not apply with respect to plans of complete liquidation if the liquidating corporation is a member of an affiliated group of corporations under section 60(b) (2), (5), (6), or (8) of the Tax Reform Act of 1984 [Pub. L. 98–369, set out as a note under section 1504 of this title], for all taxable years which include the date of any distribution pursuant to such plan.”
Savings Provision
For provisions that nothing in amendment by Pub. L. 115–141 be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to Mar. 23, 2018, for purposes of determining liability for tax for periods ending after Mar. 23, 2018, see section 401(e) of Pub. L. 115–141, set out as a note under section 23 of this title. Plan
Amendments
Not Required Until January 1, 1989For 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.
Reference
Citations & Metadata
Citation
26 U.S.C. § 332
Title 26, Internal Revenue Code
Last Updated
Sep 22, 2026
Release point: 119-110