---
kind: "section"
citation: "26 U.S.C. § 356"
title: "26"
title_heading: "Internal Revenue Code"
number: "356"
heading: "Receipt of additional consideration"
release: "119-102"
date: "2026-07-12"
url: "https://uscodex.org/usc/26/356"
units:
  - "Subtitle A — Income Taxes"
  - "Chapter 1 — Normal Taxes and Surtaxes"
  - "Subchapter C — Corporate Distributions and Adjustments"
  - "Part III — Corporate Organizations and Reorganizations"
  - "Subpart B — Effects on Shareholders and Security Holders"
---

# §356. Receipt of additional consideration

- (a) **Gain on exchanges—**
  - (1) **Recognition of gain—** If—
    - (A) section [354](/usc/26/354.md) or [355](/usc/26/355.md) would apply to an exchange but for the fact that
    - (B) the [property](/usc/26/317.md?p=a) received in the exchange consists not only of [property](/usc/26/317.md?p=a) permitted by section [354](/usc/26/354.md) or [355](/usc/26/355.md) to be received without the recognition of gain but also of other [property](/usc/26/317.md?p=a) or money,

    then the gain, if any, to the recipient shall be recognized, but in an amount not in excess of the sum of such money and the fair market [value](/usc/26/851.md?p=c-4) of such other [property](/usc/26/317.md?p=a).

  - (2) **Treatment as dividend—** If an exchange is described in [paragraph (1)](#a-1) but has the effect of the distribution of a [dividend](/usc/26/316.md?p=a) (determined with the application of [section 318(a)](/usc/26/318.md?p=a)), then there shall be treated as a [dividend](/usc/26/316.md?p=a) to each distributee such an amount of the gain recognized under [paragraph (1)](#a-1) as is not in excess of his ratable share of the undistributed earnings and profits of the corporation accumulated after February 28, 1913. The remainder, if any, of the gain recognized under [paragraph (1)](#a-1) shall be treated as gain from the exchange of [property](/usc/26/317.md?p=a).
- (b) **Additional consideration received in certain distributions—** If—
  - (1) [section 355](/usc/26/355.md) would apply to a distribution but for the fact that
  - (2) the [property](/usc/26/317.md?p=a) received in the distribution consists not only of [property](/usc/26/317.md?p=a) permitted by [section 355](/usc/26/355.md) to be received without the recognition of gain, but also of other [property](/usc/26/317.md?p=a) or money,

  then an amount equal to the sum of such money and the fair market [value](/usc/26/851.md?p=c-4) of such other [property](/usc/26/317.md?p=a) shall be treated as a [distribution of property](/usc/26/316.md?p=b-2-B) to which [section 301](/usc/26/301.md) applies.

- (c) **Loss—** If—
  - (1) [section 354](/usc/26/354.md) would apply to an exchange or [section 355](/usc/26/355.md) would apply to an exchange or distribution, but for the fact that
  - (2) the [property](/usc/26/317.md?p=a) received in the exchange or distribution consists not only of [property](/usc/26/317.md?p=a) permitted by section [354](/usc/26/354.md) or [355](/usc/26/355.md) to be received without the recognition of gain or loss, but also of other [property](/usc/26/317.md?p=a) or money,

  then no loss from the exchange or distribution shall be recognized.

- (d) **Securities as other property—** For purposes of this section—
  - (1) **In general—** Except as provided in [paragraph (2)](#d-2), the term “other [property](/usc/26/317.md?p=a)” includes [securities](/usc/26/368.md?p=a-2-F-vii).
  - (2) **Exceptions—**
    - (A) **Securities with respect to which nonrecognition of gain would be permitted—** The term “other [property](/usc/26/317.md?p=a)” does not include [securities](/usc/26/368.md?p=a-2-F-vii) to the extent that, under section [354](/usc/26/354.md) or [355](/usc/26/355.md), such [securities](/usc/26/368.md?p=a-2-F-vii) would be permitted to be received without the recognition of gain.
    - (B) **Greater principal amount in section 354 exchange—** If—
      - (i) in an exchange described in [section 354](/usc/26/354.md) (other than [subsection (c)](#c) thereof), [securities](/usc/26/368.md?p=a-2-F-vii) of a corporation a party to the [reorganization](/usc/26/368.md?p=a-1) are surrendered and [securities](/usc/26/368.md?p=a-2-F-vii) of any corporation a party to the [reorganization](/usc/26/368.md?p=a-1) are received, and
      - (ii) the principal amount of such [securities](/usc/26/368.md?p=a-2-F-vii) received exceeds the principal amount of such [securities](/usc/26/368.md?p=a-2-F-vii) surrendered,

      then, with respect to such [securities](/usc/26/368.md?p=a-2-F-vii) received, the term “other [property](/usc/26/317.md?p=a)” means only the fair market [value](/usc/26/851.md?p=c-4) of such excess. For purposes of this subparagraph and [subparagraph (C)](#d-2-C), if no [securities](/usc/26/368.md?p=a-2-F-vii) are surrendered, the excess shall be the entire principal amount of the [securities](/usc/26/368.md?p=a-2-F-vii) received.

    - (C) **Greater principal amount in section 355 transaction—** If, in an exchange or distribution described in [section 355](/usc/26/355.md), the principal amount of the [securities](/usc/26/368.md?p=a-2-F-vii) in the controlled corporation which are received exceeds the principal amount of the [securities](/usc/26/368.md?p=a-2-F-vii) in the distributing corporation which are surrendered, then, with respect to such [securities](/usc/26/368.md?p=a-2-F-vii) received, the term “other [property](/usc/26/317.md?p=a)” means only the fair market [value](/usc/26/851.md?p=c-4) of such excess.
- (e) **Nonqualified preferred stock treated as other property—** For purposes of this section—
  - (1) **In general—** Except as provided in [paragraph (2)](#e-2), the term “other [property](/usc/26/317.md?p=a)” includes nonqualified preferred [stock](/usc/26/1504.md?p=a-4) (as defined in [section 351(g)(2)](/usc/26/351.md?p=g-2)).
  - (2) **Exception—** The term “other [property](/usc/26/317.md?p=a)” does not include nonqualified preferred [stock](/usc/26/1504.md?p=a-4) (as so defined) to the extent that, under section [354](/usc/26/354.md) or [355](/usc/26/355.md), such preferred [stock](/usc/26/1504.md?p=a-4) would be permitted to be received without the recognition of gain.
- (f) **Exchanges for section 306 stock—** Notwithstanding any other provision of this section, to the extent that any of the other [property](/usc/26/317.md?p=a) (or money) is received in exchange for [section 306](/usc/26/306.md) [stock](/usc/26/1504.md?p=a-4), an amount equal to the fair market [value](/usc/26/851.md?p=c-4) of such other [property](/usc/26/317.md?p=a) (or the amount of such money) shall be treated as a [distribution of property](/usc/26/316.md?p=b-2-B) to which [section 301](/usc/26/301.md) applies.
- (g) **Transactions involving gift or compensation—** For special rules for a transaction described in section [354](/usc/26/354.md), [355](/usc/26/355.md), or this section, but which—
  - (1) results in a gift, see [section 2501](/usc/26/2501.md) and following, or
  - (2) has the effect of the payment of [compensation](/usc/26/414.md?p=n-5-C-iii), see [section 61(a)(1)](/usc/26/61.md?p=a-1).

## Source credit

(Aug. 16, 1954, ch. 736, 68A Stat. 115; Pub. L. 94–253, § 1(c), Mar. 31, 1976, 90 Stat. 296; Pub. L. 97–248, title II, § 227(b), Sept. 3, 1982, 96 Stat. 492; Pub. L. 101–508, title XI, § 11801(c)(8)(E), Nov. 5, 1990, 104 Stat. 1388–524; Pub. L. 105–34, title X, § 1014(d), Aug. 5, 1997, 111 Stat. 921.)

## Notes

### Editorial Notes

### Amendments

1997—Subsecs. (e) to (g). Pub. L. 105–34 added subsec. (e) and redesignated former subsecs. (e) and (f) as (f) and (g), respectively.

1990—Subsec. (d)(2)(B)(i). Pub. L. 101–508 struck out “or (d)” after “subsection (c)”.

1982—Subsec. (a)(2). Pub. L. 97–248 inserted “(determined with the application of section 318(a))” after “distribution of a dividend”.

1976—Subsec. (d)(2)(B)(i). Pub. L. 94–253 substituted “subsection (c) or (d) thereof” for “subsection (c) thereof”.

### Statutory Notes and Related Subsidiaries

### Effective Date of 1997 Amendment

Amendment by Pub. L. 105–34 applicable, with certain exceptions, to transactions after June 8, 1997, see section 1014(f) of Pub. L. 105–34, set out as a note under section 351 of this title.

### Effective Date of 1982 Amendment

Pub. L. 97–248, title II, § 227(c)(2), Sept. 3, 1982, 96 Stat. 492, provided that: “The amendment made by subsection (b) [amending this section] shall apply to distributions after August 31, 1982, in taxable years ending after such date.”

### Effective Date of 1976 Amendment

Amendment by Pub. L. 94–253 applicable to taxable years ending after Mar. 31, 1976, see section 2 of Pub. L. 94–253, set out as a note under section 354 of this title.

### Savings Provision

For provisions that nothing in amendment by Pub. L. 101–508 be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to Nov. 5, 1990, for purposes of determining liability for tax for periods ending after Nov. 5, 1990, see section 11821(b) of Pub. L. 101–508, set out as a note under section 45K of this title.