Internal Revenue Code · 26 U.S.C.
§ 305. Distributions of stock and stock rights
Official text, no changes From the Office of the Law Revision Counsel, release point 119-121 (current through Public Law 119-121 (October 9, 2026)). Compare it with the official text at uscode.house.gov (external site).
Cite as 26 U.S.C. § 305
At a glance
Read from the text, the source credit and the official notes. Not part of the law.
- Status
- In force
- Enacted
- December 30, 1969 by Pub. L. 91–172
- Last amended
- March 23, 2018 by Pub. L. 115–141
- Amendments
- 7 dated changes in the source credit
- Length
- 6 subsections · 1,127 words · about 5 min to read
- Defines
- 4 terms
- Cross-references
- cites 7; cited by 7 Code sections and 36 other regulations
- Regulations
- 8 issued under this section
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.
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.
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).
For purposes of this section, the term “stock” includes rights to acquire such stock.
Appropriate adjustments to basis shall be made for amounts includible in gross income under paragraph (1).
If any person strips the rights to 1 or more dividends from any stock described in paragraph (5)(B) and after April 30, 1993, disposes of such dividend rights, for purposes of paragraph (1), such person shall be treated as having purchased the stripped preferred stock on the date of such disposition for a purchase price equal to such person’s adjusted basis in such stripped preferred stock.
Any amount included in gross income under paragraph (1) shall be treated as ordinary income.
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.
For treatment of stripped interests in certain accounts or entities holding preferred stock, see section 1286(e).
(Aug. 16, 1954, ch. 736, 68A Stat. 90; Pub. L. 91–172, title IV, § 421(a), Dec. 30, 1969, 83 Stat. 614; Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 97–34, title III, § 321(a), (b), Aug. 13, 1981, 95 Stat. 287, 289; Pub. L. 97–448, title I, § 103(f), Jan. 12, 1983, 96 Stat. 2378; Pub. L. 101–508, title XI, §§ 11322(a), 11801(a)(17), (c)(7), Nov. 5, 1990, 104 Stat. 1388–463, 1388–521, 1388–524; Pub. L. 103–66, title XIII, § 13206(c)(1), Aug. 10, 1993, 107 Stat. 465; Pub. L. 108–357, title VIII, § 831(b), Oct. 22, 2004, 118 Stat. 1587; Pub. L. 115–141, div. U, title IV, § 401(c)(2)(D), Mar. 23, 2018, 132 Stat. 1206.)
Terms defined here
Where the text says “the term … means”. Select a term to jump to its definition.
Regulations under this section
Treasury regulations (26 CFR) issued under § 305
- § 1.305-1 Stock dividends.
- § 1.305-2 Distributions in lieu of money.
- § 1.305-3 Disproportionate distributions.
- § 1.305-4 Distributions of common and preferred stock.
- § 1.305-5 Distributions on preferred stock.
- § 1.305-6 Distributions of convertible preferred.
- § 1.305-7 Certain transactions treated as distributions.
- § 1.305-8 Effective dates.
Cross-references
Computed from the citations in the text of Title 26 and 26 CFR.
This section cites 7 other sections
- § 301 Distributions of property
- § 1273(a)(3) Determination of amount of original issue discount
- § 1272(a) Current inclusion in income of original issue discount
- § 1286(e) Tax treatment of stripped bonds
- § 351 Transfer to corporation controlled by transferor
- § 2501 Imposition of tax
- § 61(a)(1) Gross income defined
Cited by 7 Code sections
- § 167(e)(2)(B) Depreciation
- § 306(c)(1)(A) Dispositions of certain stock
- § 307(a) Basis of stock and stock rights acquired in distributions
- § 312(d)(1)(B) Effect on earnings and profits
- § 424(b) Definitions and special rules
- § 1286(e) Tax treatment of stripped bonds
- § 6040(6) Cross references
Cited in 36 regulations not issued under it
- § 1.61-9 Dividends.
- § 1.61-15 Options received as payment of income.
- § 1.187-2 Definitions.
- § 1.245A(d)-1 Disallowance of foreign tax credit or deduction.
- § 1.303-2 Requirements.
- § 1.306-3 Section 306 stock defined.
- § 1.307-1 General.
- § 1.307-2 Exception.
- § 1.312-1 Adjustment to earnings and profits reflecting distributions by corporations.
- § 1.312-8 Effect on earnings and profits of receipt of tax-free distributions requiring adjustment or allocation of basis of stock.
- § 1.312-11 Effect on earnings and profits of certain other tax-free exchanges, tax-free distributions, and tax-free transfers from one corporation to another.
- § 1.316-1 Dividends.
- § 1.354-1 Exchanges of stock and securities in certain reorganizations.
- § 1.355-0 Outline of sections.
- § 1.355-1 Distribution of stock and securities of a controlled corporation.
- § 1.355-6 Recognition of gain on certain distributions of stock or securities in controlled corporation.
- § 1.355-8 Definition of predecessor and successor and limitations on gain recognition under section 355(e) and section 355(f).
- § 1.368-2 Definition of terms.
- § 1.382-3 Definitions and rules relating to a 5-percent shareholder.
- § 1.409A-1 Definitions and covered plans.
- § 1.424-1 Definitions and special rules applicable to statutory options.
- § 1.856-1 Definition of real estate investment trust.
- § 1.861-20 Allocation and apportionment of foreign income taxes.
- § 1.871-15 Treatment of dividend equivalents.
Show 12 more
- § 1.881-3 Conduit financing arrangements.
- § 1.1032-1 Disposition by a corporation of its own capital stock.
- § 1.1036-1 Stock for stock of the same corporation.
- § 1.1244(d)-3 Stock dividend, recapitalizations, changes in name, etc.
- § 1.1400Z2(b)-1 Inclusion of gains that have been deferred under section 1400Z-2(a).
- § 1.1502-13 Intercompany transactions.
- § 1.1502-32 Investment adjustments.
- § 1.6045-0 Table of contents.
- § 1.6045-1 Returns of information of brokers and barter exchanges.
- § 1.7874-10 Disregard of certain distributions.
- § 1.9006-1 Interest and penalties in case of certain taxable years.
- § 13.10 Distribution of money in lieu of fractional shares.
Amendment history
From the source credit and the official notes, newest first.
- Amended by Pub. L. 115–141Parts changed in 2018: (e)(7)
- Amended by Pub. L. 108–357Parts changed in 2004: (e)(7)
- Amended by Pub. L. 103–66Parts changed in 1993: (e)
- Amended by Pub. L. 101–508Parts changed in 1990: (c) (d)(1) (e)
- Amended by Pub. L. 97–448Parts changed in 1983: (e)(3)(A) (e)(3)(C)(ii)
- Amended by Pub. L. 97–34Parts changed in 1981: (d)(1) (e)
- Amended by Pub. L. 94–455Parts changed in 1976: (b)(5)
- Enacted by Pub. L. 91–172Parts changed in 1969: (a) (b) (c)
Where it sits in the Code
- Subtitle A Income Taxes
- Chapter 1 NORMAL TAXES AND SURTAXES
- Subchapter C Corporate Distributions and Adjustments
- Part I DISTRIBUTIONS BY CORPORATIONS
- Subpart A Effects on Recipients
Nearby sections
- § 301 Distributions of property
- § 302 Distributions in redemption of stock
- § 303 Distributions in redemption of stock to pay death taxes
- § 304 Redemption through use of related corporations
- § 305 Distributions of stock and stock rights
- § 306 Dispositions of certain stock
- § 307 Basis of stock and stock rights acquired in distributions
Official notes
Show the Law Revision Counsel's notes (amendments, effective dates)
Editorial Notes
Amendments
2018—Subsec. (e)(7). Pub. L. 115–141 substituted “1286(e)” for “1286(f)”.
2004—Subsec. (e)(7). Pub. L. 108–357 added par. (7).
1993—Subsecs. (e), (f). Pub. L. 103–66 added subsec. (e) and redesignated former subsec. (e) as (f).
1990—Subsec. (c). Pub. L. 101–508, § 11322(a), inserted sentence at end specifying the contents of regulations.
Subsec. (d)(1). Pub. L. 101–508, § 11801(c)(7)(A), struck out “(other than subsection (e))” after “this section”.
Subsecs. (e), (f). Pub. L. 101–508, § 11801(a)(17), (c)(7)(B), redesignated subsec. (f) as (e) and struck out former subsec. (e) relating to dividend reinvestment in stock of public utilities.
1983—Subsec. (e)(3)(A). Pub. L. 97–448, § 103(f)(1), substituted “placed in service qualified long-life public utility property having a cost equal to at least 60 percent of the aggregate cost of all tangible property described in subparagraph (A) or (B) of section 1245(a)(3) placed in service by the corporation during such period” for “acquired public utility recovery property having a cost equal to at least 60 percent of the aggregate cost of all tangible property described in section 1245(a)(3) (other than subparagraphs (C) and (D) thereof) acquired by the corporation during such period”.
Subsec. (e)(3)(C)(ii). Pub. L. 97–448, § 103(f)(2), substituted definition of “qualified long-life public utility property” for definition of “public utility recovery property” which had been defined as public utility property (within the meaning of section 167(l)(3)(A)) which was recovery property which was 10-year property or 15-year public utility property (within the meaning of section 168), except that any requirement that the property be placed in service after December 31, 1980, did not apply.
1981—Subsec. (d)(1). Pub. L. 97–34, § 321(b), inserted “(other than subsection (e))” after “this section”.
Subsecs. (e), (f). Pub. L. 97–34, § 321(a), added subsec. (e) and redesignated former subsec. (e) as (f).
1976—Subsecs. (b)(5), (c). Pub. L. 94–455 struck out “or his delegate” after “Secretary”.
1969—Subsec. (a). Pub. L. 91–172 substituted reference to this section for reference to subsec. (b), and omitted reference to rights to acquire its stock.
Subsec. (b). Pub. L. 91–172 omitted reference to rights to acquire its stock, in text preceding par. (1), redesignated former par. (2) as par. (1) and added pars. (2) to (5). Former par. (1), providing for the extent to which distribution of preference dividends were to be treated as distribution of property to which section 301 applied, was struck out.
Subsecs. (c) to (e). Pub. L. 91–172 added subsecs. (c) and (d) and redesignated former subsec. (c) as (e).
Statutory Notes and Related Subsidiaries
Effective Date of 2018 Amendment
Pub. L. 115–141, div. U, title IV, § 401(c)(2)(E), Mar. 23, 2018, 132 Stat. 1206, provided that: “The amendments made by this paragraph [amending this section and section 1286 of this title] shall apply to bonds purchased on or after July 2, 1982.”
Effective Date of 2004 Amendment
Pub. L. 108–357, title VIII, § 831(c), Oct. 22, 2004, 118 Stat. 1587, provided that: “The amendments made by this section [amending this section and section 1286 of this title] shall apply to purchases and dispositions after the date of the enactment of this Act [Oct. 22, 2004].”
Effective Date of 1993 Amendment
Amendment by Pub. L. 103–66 effective Apr. 30, 1993, see section 13206(c)(3) of Pub. L. 103–66 set out as a note under section 167 of this title.
Effective Date of 1990 Amendment
Pub. L. 101–508, title XI, § 11322(b), Nov. 5, 1990, 104 Stat. 1388–464, provided that:
“(1) In general.— Except as provided in paragraph (2), the amendment made by subsection (a) [amending this section] shall apply to stock issued after October 9, 1990.“(2) Exception.— The amendment made by subsection (a) shall not apply to any stock issued after October 9, 1990, if—“(A) such stock is issued pursuant to a written binding contract in effect on October 9, 1990, and at all times thereafter before such issuance,“(B) such stock is issued pursuant to a registration or offering statement filed on or before October 9, 1990, with a Federal or State agency regulating the offering or sale of securities and such stock is issued before the date 90 days after the date of such filing, or“(C) such stock is issued pursuant to a plan filed on or before October 9, 1990, in a title 11 or similar case (as defined in section 368(a)(3)(A) of the Internal Revenue Code of 1986).”
Effective Date of 1983 Amendment
Amendment by Pub. L. 97–448 effective, except as otherwise provided, as if it had been included in the provision of the Economic Recovery Tax Act of 1981, Pub. L. 97–34, to which such amendment relates, see section 109 of Pub. L. 97–448, set out as a note under section 1 of this title.
Effective Date of 1981 Amendment
Pub. L. 97–34, title III, § 321(c), Aug. 13, 1981, 95 Stat. 289, provided that: “The amendments made by this section [amending this section] shall apply to distributions after December 31, 1981, in taxable years ending after such date.”
Effective Date of 1969 Amendment
Pub. L. 91–172, title IV, § 421(b), Dec. 30, 1969, 83 Stat. 615, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
“(1) Except as otherwise provided in this subsection, the amendment made by subsection (a) [amending this section] shall apply with respect to distributions (or deemed distributions) made after January 10, 1969, in taxable years ending after such date.“(2)(A) Section 305(b)(2) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as added by subsection (a)) shall not apply to a distribution (or deemed distribution) of stock made before January 1, 1991, with respect to stock (i) outstanding on January 10, 1969, (ii) issued pursuant to a contract binding on January 10, 1969, on the distributing corporation, (iii) which is additional stock of that class of stock which (as of January 10, 1969) had the largest fair market value of all classes of stock of the corporation (taking into account only stock outstanding on January 10, 1969, or issued pursuant to a contract binding on January 10, 1969), (iv) described in subparagraph (C)(iii), or (v) issued in a prior distribution described in clause (i), (ii), (iii), or (iv).“(B) Subparagraph (A) shall apply only if—“(i) the stock as to which there is a receipt of property was outstanding on January 10, 1969 (or was issued pursuant to a contract binding on January 10, 1969, on the distributing corporation), and“(ii) if such stock and any stock described in subparagraph (A)(i) were also outstanding on January 10, 1968, a distribution of property was made on or before January 10, 1969, with respect to such stock, and a distribution of stock was made on or before January 10, 1969, with respect to such stock described in subparagraph (A)(i).“(C) Subparagraph (A) shall cease to apply when at any time after October 9, 1969, the distributing corporation issues any of its stock (other than in a distribution of stock with respect to stock of the same class) which is not—“(i) nonconvertible preferred stock.“(ii) additional stock of that class of stock which meets the requirements of subparagraph (A)(iii), or“(iii) preferred stock which is convertible into stock which meets the requirements of subparagraph (A)(iii) at a fixed conversion ratio which takes account of all stock dividends and stock splits with respect to the stock into which such convertible stock is convertible.“(D) For purposes of this paragraph, the term ‘stock’ includes rights to acquire such stock.“(3) In cases to which Treasury Decision 6990 (promulgated January 10, 1969) would not have applied, in applying paragraphs (1) and (2) April 22, 1969, shall be substituted for January 10, 1969.“(4) Section 305(b)(4) of the Internal Revenue Code of 1986 (as added by subsection (a)) shall not apply to any distribution (or deemed distribution) with respect to preferred stock (including any increase in the conversion ratio of convertible stock) made before January 1, 1991, pursuant to the terms relating to the issuance of such stock which were in effect on January 10, 1969.“(5) With respect to distributions made or considered as made after January 10, 1969, in taxable years ending after such date, to the extent that the amendment made by subsection (a) [amending this section] does not apply by reason of paragraph (2), (3), or (4) of this subsection, section 305 of the Internal Revenue Code of 1986 (as in effect before the amendment made by subsection (a)) shall continue to apply.”
Savings Provision
For provisions that nothing in amendment by section 11801(a)(17), (c)(7) of 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.