
From the U.S. Code Online via GPO Access
[wais.access.gpo.gov]
[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC1081]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
          Subchapter O--Gain or Loss on Disposition of Property
 
            PART VI--EXCHANGES IN OBEDIENCE TO S.E.C. ORDERS
 
Sec. 1081. Nonrecognition of gain or loss on exchanges or 
        distributions in obedience to orders of S.E.C.
        

(a) Exchanges of stock or securities only

    No gain or loss shall be recognized to the transferor if stock or 
securities in a corporation which is a registered holding company or a 
majority-owned subsidiary company are transferred to such corporation or 
to an associate company thereof which is a registered holding company or 
a majority-owned subsidiary company solely in exchange for stock or 
securities (other than stock or securities which are nonexempt 
property), and the exchange is made by the transferee corporation in 
obedience to an order of the Securities and Exchange Commission.

(b) Exchanges and sales of property by corporations

                          (1) General rule

        No gain shall be recognized to a transferor corporation which is 
    a registered holding company or an associate company of a registered 
    holding company, if such corporation, in obedience to an order of 
    the Securities and Exchange Commission, transfers property in 
    exchange for property, and such order recites that such exchange by 
    the transferor corporation is necessary or appropriate to the 
    integration or simplification of the holding company system of which 
    the transferor corporation is a member. Any gain, to the extent that 
    it cannot be applied in reduction of basis under section 1082(a)(2), 
    shall be recognized.

                       (2) Nonexempt property

        If any such property so received is nonexempt property, gain 
    shall be recognized unless such nonexempt property or an amount 
    equal to the fair market value of such property at the time of the 
    transfer is, within 24 months of the transfer, under regulations 
    prescribed by the Secretary, and in accordance with an order of the 
    Securities and Exchange Commission, expended for property other than 
    nonexempt property or is invested as a contribution to the capital, 
    or as paid-in surplus, of another corporation, and such order 
    recites that such expenditure or investment by the transferor 
    corporation is necessary or appropriate to the integration or 
    simplification of the holding company system of which the transferor 
    corporation is a member. If the fair market value of such nonexempt 
    property at the time of the transfer exceeds the amount expended and 
    the amount invested, as required in the preceding sentence, the 
    gain, if any, to the extent of such excess, shall be recognized.

        (3) Cancellation or redemption of stock or securities

        For purposes of this subsection, a distribution in cancellation 
    or redemption (except a distribution having the effect of a 
    dividend) of the whole or a part of the transferor's own stock (not 
    acquired on the transfer) and a payment in complete or partial 
    retirement or cancellation of securities representing indebtedness 
    of the transferor or a complete or partial retirement or 
    cancellation of such securities which is a part of the consideration 
    for the transfer shall be considered an expenditure for property 
    other than nonexempt property, and if, on the transfer, a liability 
    of the transferor is assumed, or property of the transferor is 
    transferred subject to a liability, the amount of such liability 
    shall be considered to be an expenditure by the transferor for 
    property other than nonexempt property.

                            (4) Consents

        This subsection shall not apply unless the transferor 
    corporation consents, at such time and in such manner as the 
    Secretary may by regulations prescribe to the regulations prescribed 
    under section 1082(a)(2) in effect at the time of filing its return 
    for the taxable year in which the transfer occurs.

(c) Distribution of stock or securities only

    If there is distributed, in obedience to an order of the Securities 
and Exchange Commission, to a shareholder in a corporation which is a 
registered holding company or a majority-owned subsidiary company, stock 
or securities (other than stock or securities which are nonexempt 
property), without the surrender by such shareholder of stock or 
securities in such corporation, no gain to the distributee from the 
receipt of the stock or securities so distributed shall be recognized.

(d) Transfers within system group

                          (1) General rule

        No gain or loss shall be recognized to a corporation which is a 
    member of a system group--
            (A) if such corporation transfers property to another 
        corporation which is a member of the same system group in 
        exchange for other property, and the exchange by each 
        corporation is made in obedience to an order of the Securities 
        and Exchange Commission, or
            (B) if there is distributed to such corporation as a 
        shareholder in a corporation which is a member of the same 
        system group, property, without the surrender by such 
        shareholder of stock or securities in the corporation making the 
        distribution, and the distribution is made and received in 
        obedience to an order of the Securities and Exchange Commission.

    If an exchange by or a distribution to a corporation with respect to 
    which no gain or loss is recognized under any of the provisions of 
    this paragraph may also be considered to be within the provisions of 
    subsection (a), (b), or (c), then the provisions of this paragraph 
    only shall apply.

                  (2) Sales of stock or securities

        If the property received on an exchange which is within any of 
    the provisions of paragraph (1) consists in whole or in part of 
    stock or securities issued by the corporation from which such 
    property was received, and if in obedience to an order of the 
    Securities and Exchange Commission such stock or securities (other 
    than stock which is not preferred as to both dividends and assets) 
    are sold and the proceeds derived therefrom are applied in whole or 
    in part in the retirement or cancellation of stock or of securities 
    of the recipient corporation outstanding at the time of such 
    exchange, no gain or loss shall be recognized to the recipient 
    corporation on the sale of the stock or securities with respect to 
    which such order was made; except that if any part of the proceeds 
    derived from the sale of such stock or securities is not so applied, 
    or if the amount of such proceeds is in excess of the fair market 
    value of such stock or securities at the time of such exchange, the 
    gain, if any, shall be recognized, but in an amount not in excess of 
    the proceeds which are not so applied, or in an amount not more than 
    the amount by which the proceeds derived from such sale exceed such 
    fair market value, whichever is the greater.

(e) Exchanges not solely in kind

                          (1) General rule

        If an exchange (not within any of the provisions of subsection 
    (d)) would be within the provisions of subsection (a) if it were not 
    for the fact that property received in exchange consists not only of 
    property permitted by such subsection to be received without the 
    recognition of gain or loss, but also of other property 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 of such other property, and the loss, if any, to the recipient 
    shall not be recognized.

                (2) Distribution treated as dividend

        If an exchange is within the provisions of paragraph (1) and if 
    it includes a distribution which has the effect of the distribution 
    of a taxable dividend, then there shall be taxed as a dividend to 
    each distributee such an amount of the gain recognized under such 
    paragraph 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) shall be taxed as a gain from the 
    exchange of property.

(f) Conditions for application of section

    The provisions of this section shall not apply to an exchange, 
expenditure, investment, distribution, or sale unless--
        (1) the order of the Securities and Exchange Commission in 
    obedience to which such exchange, expenditure, investment, 
    distribution, or sale was made recites that such exchange, 
    expenditure, investment, distribution, or sale is necessary or 
    appropriate to effectuate the provisions of section 11(b) of the 
    Public Utility Holding Company Act of 1935 (15 U.S.C. 79k(b)),
        (2) such order specifies and itemizes the stock and securities 
    and other property which are ordered to be acquired, transferred, 
    received, or sold on such exchange, acquisition, expenditure, 
    distribution, or sale, and, in the case of an investment, the 
    investment to be made, and
        (3) such exchange, acquisition, expenditure, investment, 
    distribution, or sale was made in obedience to such order, and was 
    completed within the time prescribed therefor.

(g) Nonapplication of other provisions

    If an exchange or distribution made in obedience to an order of the 
Securities and Exchange Commission is within any of the provisions of 
this part and may also be considered to be within any of the other 
provisions of this subchapter or subchapter C (sec. 301 and following, 
relating to corporate distributions and adjustments), then the 
provisions of this part only shall apply.

(Aug. 16, 1954, ch. 736, 68A Stat. 312; Pub. L. 94-455, title XIX, 
Secs. 1901(a)(132), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1786, 1834.)


                               Amendments

    1976--Subsec. (b)(2), (4). Pub. L. 94-455, Sec. 1906(b)(13)(A), 
struck out ``or his delegate'' after ``Secretary''.
    Subsec. (c). Pub. L. 94-455, Sec. 1901(a)(132)(A), among other 
changes, struck out the special rule relating to the non-recognition of 
gain where a shareholder is given distribution rights to acquire common 
stock in a second corporation without the surrender of stock in the 
first corporation.
    Subsec. (f). Pub. L. 94-455, Sec. 1901(a)(132)(B), substituted ``The 
provisions'' for ``Except in the case of a distribution described in 
subsection (c)(2), the provisions'' and struck out ``49 Stat. 820;'' 
before ``15 U.S.C. 79k(b)''.
    Subsec. (g). Pub. L. 94-455, Sec. 1901(a)(132)(C), substituted ``If 
an'' for ``If a distribution described in subsection (c)(2), or an'', 
and struck out the comma after ``Commission''.


                    Effective Date of 1976 Amendment

    Amendment by section 1901(a)(132) of Pub. L. 94-455 effective for 
taxable years beginning after Dec. 31, 1976, see section 1901(d) of Pub. 
L. 94-455, set out as a note under section 2 of this title.

                  Section Referred to in Other Sections

    This section is referred to in sections 1082, 1223, 1245, 1250 of 
this title.
