Internal Revenue Code Section 354:

Exchanges of stock and securities in certain reorganizations
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Location in U.S. Code: Title 26A, Chapter 1C, Part IIIB

Section 354. Exchanges of stock and securities in certain
(a) General rule
(1) In general
No gain or loss shall be recognized if stock or securities in a
corporation a party to a reorganization are, in pursuance of the
plan of reorganization, exchanged solely for stock or securities
in such corporation or in another corporation a party to the
(2) Limitation
(A) Excess principal amount
Paragraph (1) shall not apply if -
(i) the principal amount of any such securities received
exceeds the principal amount of any such securities
surrendered, or
(ii) any such securities are received and no such
securities are surrendered.
(B) Property attributable to accrued interest
Neither paragraph (1) nor so much of section 356 as relates
to paragraph (1) shall apply to the extent that any stock
(including nonqualified preferred stock, as defined in section
351(g)(2)), securities, or other property received is
attributable to interest which has accrued on securities on or
after the beginning of the holder's holding period.
(C) Nonqualified preferred stock
(i) In general
Nonqualified preferred stock (as defined in section
351(g)(2)) received in exchange for stock other than
nonqualified preferred stock (as so defined) shall not be
treated as stock or securities.
(ii) Recapitalizations of family-owned corporations
(I) In general
Clause (i) shall not apply in the case of a
recapitalization under section 368(a)(1)(E) of a
family-owned corporation.
(II) Family-owned corporation
For purposes of this clause, except as provided in
regulations, the term ''family-owned corporation'' means
any corporation which is described in clause (i) of section
447(d)(2)(C) throughout the 8-year period beginning on the
date which is 5 years before the date of the
recapitalization. For purposes of the preceding sentence,
stock shall not be treated as owned by a family member
during any period described in section 355(d)(6)(B).
(III) Extension of statute of limitations
The statutory period for the assessment of any deficiency
attributable to a corporation failing to be a family-owned
corporation shall not expire before the expiration of 3
years after the date the Secretary is notified by the
corporation (in such manner as the Secretary may prescribe)
of such failure, and such deficiency may be assessed before
the expiration of such 3-year period notwithstanding the
provisions of any other law or rule of law which would
otherwise prevent such assessment.
(3) Cross references
(A) For treatment of the exchange if any property is received
which is not permitted to be received under this subsection
(including nonqualified preferred stock and an excess principal
amount of securities received over securities surrendered, but
not including property to which paragraph (2)(B) applies), see
section 356.
(B) For treatment of accrued interest in the case of an
exchange described in paragraph (2)(B), see section 61.
(b) Exception
(1) In general
Subsection (a) shall not apply to an exchange in pursuance of a
plan of reorganization within the meaning of subparagraph (D) or
(G) of section 368(a)(1), unless -
(A) the corporation to which the assets are transferred
acquires substantially all of the assets of the transferor of
such assets; and
(B) the stock, securities, and other properties received by
such transferor, as well as the other properties of such
transferor, are distributed in pursuance of the plan of
(2) Cross reference
For special rules for certain exchanges in pursuance of plans
of reorganization within the meaning of subparagraph (D) or (G)
of section 368(a)(1), see section 355.
(c) Certain railroad reorganizations
Notwithstanding any other provision of this subchapter,
subsection (a)(1) (and so much of section 356 as relates to this
section) shall apply with respect to a plan of reorganization
(whether or not a reorganization within the meaning of section
368(a)) for a railroad confirmed under section 1173 of title 11 of
the United States Code, as being in the public interest.

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