§ 332 — Complete Liquidations Of Subsidiaries

(a) No gain or loss shall be recognized on the receipt by a corporation of property distributed in complete liquidation of another corporation. (b) 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. (c) 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. (1) 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) For purposes of this subsection: (A) The term “applicable holding company” means any domestic corporation— (i) which is a common parent of an affiliated group, (ii) stock of which is directly owned by the distributee foreign corporation, (iii) substantially all of the assets of which consist of stock in other members of such affiliated group, and (iv) which has not been in existence at all times during the 5 years immediately preceding the date of the liquidation. (B) 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) 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) 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.