US Code

Public Law 119-73 (01/23/2026)

26 U.S.C. § 354

Exchanges of stock and securities in certain reorganizations

(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 reorganization.

(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

1

1 See References in Text note below.
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 reorganization.
(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

section 1173 of title 11Notwithstanding 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 of the United States Code, as being in the public interest.

Aug. 16, 1954, ch. 73668A Stat. 112Pub. L. 94–253, § 1(c)90 Stat. 296Pub. L. 95–473, § 2(a)(2)(F)92 Stat. 1465Pub. L. 96–58994 Stat. 3403Pub. L. 101–508, title XI, § 11801(c)(8)(D)104 Stat. 1388–524Pub. L. 104–88, title III, § 304(c)109 Stat. 944Pub. L. 105–34, title X, § 1014(b)111 Stat. 920Pub. L. 105–206, title VI, § 6010(e)(2)112 Stat. 814(, ; , , ; , , ; , §§ 4(e)(1), (h)(1), 6(i)(2), , , 3404, 3410; , , ; , , ; , (e)(1), (2), , , 921; , , .)

Editorial Notes

References in Text

Pub. L. 115–97, title I, § 13102(a)(5)(C)131 Stat. 2103Section 447(d), referred to in subsec. (a)(2)(C)(ii)(II), was repealed and provisions not relating to family-owned corporations were redesignated as section 447(d) by , , .

Amendments

Pub. L. 105–2061998—Subsec. (a)(2)(C)(ii)(III). added subcl. (III).

Pub. L. 105–34, § 1014(e)(1)1997—Subsec. (a)(2)(B). , inserted “(including nonqualified preferred stock, as defined in section 351(g)(2))” after “stock”.

Pub. L. 105–34, § 1014(b)Subsec. (a)(2)(C). , added subpar. (C).

Pub. L. 105–34, § 1014(e)(2)Subsec. (a)(3)(A). , inserted “nonqualified preferred stock and” after “subsection (including”.

Pub. L. 104–881995—Subsec. (c). struck out “or approved by the Interstate Commerce Commission under subchapter IV of chapter 113 of title 49,” after “Code,”.

Pub. L. 101–5081990—Subsec. (d). struck out subsec. (d) “Exchanges under the final system plan for ConRail” which read as follows: “No gain or loss shall be recognized if stock or securities in a corporation are, in pursuance of an exchange to which paragraph (1) or (2) of section 374(c) applies, exchanged solely for stock of the Consolidated Rail Corporation, securities of such Corporation, certificates of value of the United States Railway Association, or any combination thereof.”

Pub. L. 96–589, § 4(e)(1)1980—Subsec. (a)(2). , redesignated existing pars. (A) and (B) as par. (A)(i), (ii), and added par. (B).

Pub. L. 96–589, § 4(e)(1)Subsec. (a)(3). , designated existing provisions as subpar. (A), inserted provisions excluding property to which paragraph (2)(B) applies, and added subpar. (B).

Pub. L. 96–589, § 4(h)(1)Subsec. (b). , substituted “subparagraph (D) or (G) of section 368(a)(1)” for “section 368(a)(1)(D)”, wherever appearing.

Pub. L. 96–589, § 6(i)(2)section 1173 of title 11Subsec. (c). , substituted “confirmed under of the United States Code, or approved by the Interstate Commerce Commission” for “approved by the Interstate Commerce Commission under section 77 of the Bankruptcy Act, or”.

Pub. L. 95–4731978—Subsec. (c). substituted “subchapter IV of chapter 113 of title 49” for “section 20b of the Interstate Commerce Act”.

Pub. L. 94–2531976—Subsec. (d). added subsec. (d).

Statutory Notes and Related Subsidiaries

Effective Date of 1998 Amendment

Pub. L. 105–206Pub. L. 105–34section 6024 of Pub. L. 105–206section 1 of this titleAmendment by effective, except as otherwise provided, as if included in the provisions of the Taxpayer Relief Act of 1997, , to which such amendment relates, see , set out as a note under .

Effective Date of 1997 Amendment

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

Effective Date of 1995 Amendment

Pub. L. 104–88section 2 of Pub. L. 104–88section 1301 of Title 49Amendment by effective , see , set out as an Effective Date note under , Transportation.

Effective Date of 1980 Amendment

section 4(e)(1) of Pub. L. 96–589Pub. L. 96–589section 108 of this titleAmendment by applicable to bankruptcy cases or similar judicial proceedings commencing after , and to exchanges which occur after , and which do not occur in a bankruptcy case or similar judicial proceeding or in a proceeding under Title 11, Bankruptcy, commenced on or before , with an exception permitting the debtor to make the amendment applicable to such cases, proceedings or exchanges commencing after , see section 7(c), (f) of , set out as a note under .

section 4(h)(1) of Pub. L. 96–589Pub. L. 96–589section 108 of this titleAmendment by applicable to bankruptcy cases or similar judicial proceedings commencing after , with an exception permitting the debtor to make the amendment applicable to such cases or proceedings commencing after , see section 7(c)(1), (f) of , set out as a note under .

section 6(i)(2) of Pub. L. 96–589section 7(e) of Pub. L. 96–589section 108 of this titleAmendment by effective , but not applicable to any proceeding under Title 11 commenced before , see , set out as a note under .

Effective Date of 1976 Amendment

Pub. L. 94–253, § 290 Stat. 297

“The amendments made by section 1 [amending this section and sections 356, 358, and 374 of this title] shall apply to taxable years ending after .”
, , , provided that:

Savings Provision

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

Abolition of United States Railway Association and Transfer of Functions

45 U.S.C. 701section 1341 of Title 45United States Railway Association abolished effective , all powers, duties, rights, and obligations of Association relating to Consolidated Rail Corporation under Regional Rail Reorganization Act of 1973 ( et seq.) transferred to Secretary of Transportation on , and any securities of Corporation held by Association transferred to Secretary of Transportation on , see , Railroads.