Title 26 — Internal Revenue CodeRelease 119-73
§361 Nonrecognition of Gain or Loss to Corporations; Treatment of Distributions
Title 26 › Subtitle 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
Summary
When a corporation goes through a reorganization, such as a merger, it does not pay tax on gain or loss if it trades its property only for stock or securities of another corporation in the deal. If it also receives money or other property, it can still avoid tax on the gain by passing that extra money or property along under the plan of reorganization, including to its creditors. If it keeps the extra, the gain is taxed. Losses on these exchanges are not recognized either way. The corporation also avoids tax when it hands out "qualified property" — mainly its own stock or stock and obligations received in the deal — to its shareholders. But if it distributes other property that has gone up in value, it is taxed as if it had sold that property at fair market value.
Full Legal Text
Title 26, §361
Internal Revenue Code — Source: USLM XML via OLRC
(a)No gain or loss shall be recognized to a corporation if such corporation is a party to a reorganization and exchanges property, in pursuance of the plan of reorganization, solely for stock or securities in another corporation a party to the reorganization.
(b)(1)If subsection (a) would apply to an exchange but for the fact that the property received in exchange consists not only of stock or securities permitted by subsection (a) to be received without the recognition of gain, but also of other property or money, then—
(A)If the corporation receiving such other property or money distributes it in pursuance of the plan of reorganization, no gain to the corporation shall be recognized from the exchange, but
(B)If the corporation receiving such other property or money does not distribute it in pursuance of the plan of reorganization, the gain, if any, to the corporation shall be recognized.
(2)If subsection (a) would apply to an exchange but for the fact that the property received in exchange consists not only of property permitted by subsection (a) to be received without the recognition of gain or loss, but also of other property or money, then no loss from the exchange shall be recognized.
(3)For purposes of paragraph (1), any transfer of the other property or money received in the exchange by the corporation to its creditors in connection with the reorganization shall be treated as a distribution in pursuance of the plan of reorganization. The Secretary may prescribe such regulations as may be necessary to prevent avoidance of tax through abuse of the preceding sentence or subsection (c)(3). 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 (reduced by the amount of the liabilities assumed (within the meaning of section 357(c))).
(c)(1)Except as provided in paragraph (2), no gain or loss shall be recognized to a corporation a party to a reorganization on the distribution to its shareholders of property in pursuance of the plan of reorganization.
(2)(A)If—
(i)in a distribution referred to in paragraph (1), the corporation distributes property other than qualified property, and
(ii)the fair market value of such property exceeds its adjusted basis (in the hands of the distributing corporation),
(B)For purposes of this subsection, the term “qualified property” means—
(i)any stock in (or right to acquire stock in) the distributing corporation or obligation of the distributing corporation, or
(ii)any stock in (or right to acquire stock in) another corporation which is a party to the reorganization or obligation of another corporation which is such a party if such stock (or right) or obligation is received by the distributing corporation in the exchange.
(C)If any property distributed in the distribution referred to in paragraph (1) is subject to a liability or the shareholder assumes a liability of the distributing corporation in connection with the distribution, then, for purposes of subparagraph (A), the fair market value of such property shall be treated as not less than the amount of such liability.
(3)For purposes of this subsection, any transfer of qualified property by the corporation to its creditors in connection with the reorganization shall be treated as a distribution to its shareholders pursuant to the plan of reorganization.
(4)section 311 and subpart B of part II of this subchapter shall not apply to any distribution referred to in paragraph (1).
(5)For provision providing for recognition of gain in certain distributions, see section 355(d).
Legislative History
Notes & Related Subsidiaries
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 AmendmentAmendment 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 AmendmentAmendment 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 AmendmentAmendment 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 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.
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, 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. § 361
Title 26 — Internal Revenue Code
Last Updated
Apr 6, 2026
Release point: 119-73