Except as otherwise provided in this section, gross income does not include the amount of any distribution of the stock of a corporation made by such corporation to its shareholders with respect to its stock.
(1) Distributions in lieu of money
If the distribution is, at the election of any of the shareholders (whether exercised before or after the declaration thereof), payable either—
(A) in its stock, or
(B) in property.
(2) Disproportionate distributions
If the distribution (or a series of distributions of which such distribution is one) has the result of—
(A) the receipt of property by some shareholders, and
(B) an increase in the proportionate interests of other shareholders in the assets or earnings and profits of the corporation.
(3) Distributions of common and preferred stock
If the distribution (or a series of distributions of which such distribution is one) has the result of—
(A) the receipt of preferred stock by some common shareholders, and
(B) the receipt of common stock by other common shareholders.
(4) Distributions on preferred stock
If the distribution is with respect to preferred stock, other than an increase in the conversion ratio of convertible preferred stock made solely to take account of a stock dividend or stock split with respect to the stock into which such convertible stock is convertible.
(5) Distributions of convertible preferred stock
If the distribution is of convertible preferred stock, unless it is established to the satisfaction of the Secretary that such distribution will not have the result described in paragraph (2).
(1) where the issuer of stock is required to redeem the stock at a specified time or the holder of stock has the option to require the issuer to redeem the stock, a redemption premium resulting from such requirement or option shall be treated as reasonable only if the amount of such premium does not exceed the amount determined under the principles of ,
(2) a redemption premium shall not fail to be treated as a distribution (or series of distributions) merely because the stock is callable, and
(3) in any case in which a redemption premium is treated as a distribution (or series of distributions), such premium shall be taken into account under principles similar to the principles of .
(1) Rights to acquire stock
For purposes of this section, the term “stock” includes rights to acquire such stock.
(2) Shareholders
For purposes of subsections (b) and (c), the term “shareholder” includes a holder of rights or of convertible securities.
(1) In general
If any person purchases after
(A) the redemption price for such stock, over
(B) the price at which such person purchased such stock.
The preceding sentence shall also apply in the case of any person whose basis in such stock is determined by reference to the basis in the hands of such purchaser.
(2) Basis adjustments
Appropriate adjustments to basis shall be made for amounts includible in gross income under paragraph (1).
(3) Tax treatment of person stripping stock
If any person strips the rights to 1 or more dividends from any stock described in paragraph (5)(B) and after
(4) Amounts treated as ordinary income
Any amount included in gross income under paragraph (1) shall be treated as ordinary income.
(5) Stripped preferred stock
For purposes of this subsection—
(A) In general
The term “stripped preferred stock” means any stock described in subparagraph (B) if there has been a separation in ownership between such stock and any dividend on such stock which has not become payable.
(B) Description of stock
Stock is described in this subsection if such stock—
(i) is limited and preferred as to dividends and does not participate in corporate growth to any significant extent, and
(ii) has a fixed redemption price.
(6) Purchase
For purposes of this subsection, the term “purchase” means—
(A) any acquisition of stock, where
(B) the basis of such stock is not determined in whole or in part by the reference to the adjusted basis of such stock in the hands of the person from whom acquired.
(7) Cross reference
For treatment of stripped interests in certain accounts or entities holding preferred stock, see .
(1) Relating to the receipt of stock and stock rights in corporate organizations and reorganizations, see part III (sec. 351 and following).
(2) In the case of a distribution which results in a gift, see section 2501 and following.
(3) In the case of a distribution which has the effect of the payment of compensation, see .