IRC 304 PRO

This two-year rule, however, does not apply to an extraordinary dividend distributed in a redemption that falls within one of three categories: (1) a redemption that is part of a partial liquidation of the redeeming corporation (2) a redemption that is not pro rata as to all shareholders and (3) a redemption that would not be treated, in whole or in part, as a dividend, had section 304 not applied (or had certain options not been taken into account). Taxpayers are generally not subject to section 1059 if they have held the stock of the distributing corporation for more than two years at the time of the dividend announcement date. The nontaxed portion is defined as the amount excluded from gross income by virtue of a dividend received deduction under sections 243, 245 and 245A. Extraordinary dividend is defined as any dividend the amount of which equals or exceeds 5 percent of the basis in the preferred stock or 10 percent of the basis in any non-preferred stock. Section 1059 requires a taxpayer that receives an extraordinary dividend to reduce its basis in the stock of the distributing corporation by the nontaxed portion of the dividend to the extent that the nontaxed portion exceeds basis, the taxpayer is required to recognize gain. One such provision regarding вЂњextraordinary dividendsвЂќ is section 1059.

While much of the focus on tax reform has been the interpretation and implementation of the newly adopted rules, it is also worth considering how the changes adopted in tax reform have given new life to some preexisting provisions.

Irc 304