---
kind: "section"
citation: "26 U.S.C. § 337"
title: "26"
title_heading: "Internal Revenue Code"
number: "337"
heading: "Nonrecognition for property distributed to parent in complete liquidation of subsidiary"
release: "119-102"
date: "2026-07-12"
url: "https://uscodex.org/usc/26/337"
units:
  - "Subtitle A — Income Taxes"
  - "Chapter 1 — Normal Taxes and Surtaxes"
  - "Subchapter C — Corporate Distributions and Adjustments"
  - "Part II — Corporate Liquidations"
  - "Subpart B — Effects on Corporation"
---

# §337. Nonrecognition for property distributed to parent in complete liquidation of subsidiary

- (a) **In general—** No gain or loss shall be recognized to the liquidating corporation on the distribution to the 80-percent distributee of any [property](/usc/26/317.md?p=a) in a complete liquidation to which [section 332](/usc/26/332.md) applies.
- (b) **Treatment of indebtedness of subsidiary, etc.**
  - (1) **Indebtedness of subsidiary to parent—** If—
    - (A) a corporation is liquidated in a liquidation to which [section 332](/usc/26/332.md) applies, and
    - (B) on the date of the adoption of the plan of liquidation, such corporation was indebted to the 80-percent distributee,

    for purposes of this section and [section 336](/usc/26/336.md), any transfer of [property](/usc/26/317.md?p=a) to the 80-percent distributee in satisfaction of such indebtedness shall be treated as a distribution to such distributee in such liquidation.

  - (2) **Treatment of tax-exempt distributee—**
    - (A) **In general—** Except as provided in [subparagraph (B)](#b-2-B), [paragraph (1)](#b-1) and [subsection (a)](#a) shall not apply where the 80-percent distributee is an [organization](/usc/26/414.md?p=m-6-A) (other than a cooperative described in [section 521](/usc/26/521.md)) which is exempt from the tax imposed by this chapter.
    - (B) **Exception where property will be used in unrelated business—**
      - (i) **In general—** [Subparagraph (A)](#b-2-A) shall not apply to any [distribution of property](/usc/26/316.md?p=b-2-B) to an [organization](/usc/26/414.md?p=m-6-A) described in [section 511(a)(2)](/usc/26/511.md?p=a-2) if, immediately after such distribution, such [organization](/usc/26/414.md?p=m-6-A) uses such [property](/usc/26/317.md?p=a) in an activity the income from which is subject to tax under [section 511(a)](/usc/26/511.md?p=a).
      - (ii) **Later disposition or change in use—** If any [property](/usc/26/317.md?p=a) to which [clause (i)](#b-2-B-i) applied is disposed of by the [organization](/usc/26/414.md?p=m-6-A) acquiring such [property](/usc/26/317.md?p=a), notwithstanding any other provision of law, any gain (not in excess of the amount not recognized by reason of [clause (i)](#b-2-B-i)) shall be included in such [organization](/usc/26/414.md?p=m-6-A)’s unrelated business [taxable income](/usc/26/63.md?p=a). For purposes of the preceding sentence, if such [property](/usc/26/317.md?p=a) ceases to be used in an activity referred to in [clause (i)](#b-2-B-i), such [organization](/usc/26/414.md?p=m-6-A) shall be treated as having disposed of such [property](/usc/26/317.md?p=a) on the date of such cessation.
- (c) **80-percent distributee—** For purposes of this section, the term “80-percent distributee” means only the corporation which meets the 80-percent [stock](/usc/26/1504.md?p=a-4) ownership requirements specified in [section 332(b)](/usc/26/332.md?p=b). For purposes of this section, the [determination](/usc/26/1313.md?p=a) of whether any corporation is an 80-percent distributee shall be made without regard to any consolidated return regulation.
- (d) **Regulations—** The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of the amendments made by subtitle D of title VI of the Tax Reform Act of 1986, including—
  - (1) regulations to ensure that such purposes may not be circumvented through the use of any provision of law or regulations (including the consolidated return regulations and part III of this subchapter) or through the use of a [regulated investment company](/usc/26/851.md?p=a), [real estate investment trust](/usc/26/856.md?p=a), or [tax-exempt](/usc/26/150.md?p=a-6) entity, and
  - (2) regulations providing for appropriate coordination of the provisions of this section with the provisions of this title relating to taxation of foreign corporations and their shareholders.

## Source credit

(Added Pub. L. 99–514, title VI, § 631(a), Oct. 22, 1986, 100 Stat. 2271; amended Pub. L. 100–203, title X, § 10223(a), Dec. 22, 1987, 101 Stat. 1330–411; Pub. L. 100–647, title I, § 1006(e)(4), (5)(A), Nov. 10, 1988, 102 Stat. 3400.)

## Notes

### Editorial Notes

### References in Text

The Tax Reform Act of 1986, referred to in subsec. (d), is Pub. L. 99–514, Oct. 22, 1986, 100 Stat. 2085. Subtitle D (§§ 631–634) of title VI of the Tax Reform Act of 1986 enacted sections 336 and 337 of this title, amended sections 26, 311, 312, 332, 334, 338, 341, 346, 367, 453, 453B, 467, 852, 897, 1056, 1248, 1255, 1276, 1363, 1366, 1374, and 1375 of this title, and repealed former sections 333, 336, and 337 of this title. For complete classification of this Act to the Code, see Tables.

### Prior Provisions

A prior section 337, acts Aug. 16, 1954, ch. 736, 68A Stat. 106; Sept. 2, 1958, Pub. L. 85–866, title I, § 19, 72 Stat. 1615; Oct. 4, 1976, Pub. L. 94–455, title XIX, §§ 1901(a)(46), 1906(b)(13)(A), title XXI, § 2118(a), 90 Stat. 1772, 1834, 1912; Nov. 6, 1978, Pub. L. 95–600, title VII, § 701(i)(1), 92 Stat. 2904; Nov. 10, 1978, Pub. L. 95–628, § 4(a), 92 Stat. 3628; Apr. 2, 1980, Pub. L. 96–223, title IV, § 403(b)(2)(A), 94 Stat. 304; Oct. 19, 1980, Pub. L. 96–471, § 2(c)(2), 94 Stat. 2254; Dec. 24, 1980, Pub. L. 96–589, § 5(c), 94 Stat. 3405; Sept. 3, 1982, Pub. L. 97–248, title II, § 224(c)(5), (6), 96 Stat. 489; Oct. 22, 1986, Pub. L. 99–514, title XVIII, § 1804(e)(7)(A), 100 Stat. 2803, related to gain or loss on sales or exchanges in connection with certain liquidations, prior to repeal by Pub. L. 99–514, § 631(a).

### Amendments

1988—Subsec. (b)(2)(B)(i). Pub. L. 100–647, § 1006(e)(4)(A), (B), substituted “described in section 511(a)(2)” for “described in section 511(a)(2) or 511(b)(2)” and “in an activity the income from which is subject to tax under section 511(a)” for “in an unrelated trade or business (as defined in section 513)”.

Subsec. (b)(2)(B)(ii). Pub. L. 100–647, § 1006(e)(4)(C), substituted “an activity referred to in clause (i)” for “an unrelated trade or business of such organization”.

Subsec. (d). Pub. L. 100–647, § 1006(e)(5)(A), in introductory provisions, substituted “amendments made by subtitle D of title VI of the Tax Reform Act of 1986” for “amendments made to this subpart by the Tax Reform Act of 1986”, and in par. (1), substituted “this subchapter) or through the use of a regulated investment company, real estate investment trust, or tax-exempt entity” for “this subchapter)”.

1987—Subsec. (c). Pub. L. 100–203 inserted at end “For purposes of this section, the determination of whether any corporation is an 80-percent distributee shall be made without regard to any consolidated return regulation.”

### Statutory Notes and Related Subsidiaries

### Effective Date of 1988 Amendment

Pub. L. 100–647, title I, § 1006(e)(5)(B), Nov. 10, 1988, 102 Stat. 3401, provided that: “The amendment made by subparagraph (A)(ii) [amending this section] shall not apply to any reorganization if before June 10, 1987— the board of directors of a party to the reorganization adopted a resolution to solicit shareholder approval for the transaction, or the shareholders or the board of directors of a party to the reorganization approved the transaction.”

Amendment 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 1987 Amendment

Amendment by Pub. L. 100–203 applicable to distributions or transfers after Dec. 15, 1987, with exceptions for certain distributee corporations and distributions covered by prior transition rule, see section 10223(d) of Pub. L. 100–203, set out as a note under section 304 of this title.

### Effective Date

Section 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 a note under section 336 of this title.