INSIGHTS AND RESOURCES

Finalized section 301 regulations

TAX ALERT  | 

Authored by RSM US LLP


Treasury has just issued final regulations1 under section 301, effective Sept. 22, 2021, which adopt the proposed regulations2 released in March 2019, without any substantive changes. These regulations reflect the statutory changes made to section 301 pursuant to the Technical and Miscellaneous Revenue Act of 1988 (the Act)3. Generally, section 301 provides rules for the treatment of distributions of property, including money, made by a corporation to its shareholders with regard to that shareholder’s stock ownership in that corporation.

Before the Act was enacted, section 301(b)(1) had provided rules for determining the amount of a distribution of property depending on whether the shareholder receiving the distribution was, or was not, a corporation. Further pre-Act amendments to section 301(b)(1) added rules to determine the amount of distributions made from foreign distributing corporations to foreign corporate distributees. 

Once the Act was enacted in 1988, section 301(b)(1) broadly provided that the amount of any distribution, to any shareholder, was the amount of money received plus the fair market value of other property received. Section 301(d) was also amended to provide fair market value basis in the property received in a section 301(a) distribution.

Prior to the effective date of the final regulations, the section 301 regulations were based on the pre-Act variations of section 301, and as such contained obsolete provisions and did not reflect the current statutory provisions. Therefore, the proposed regulations were created to delete obsolete provisions, make minor additions and revisions to reflect current statutory text, and to make some non-substantive changes for purposes of clarity and readability. Most notably, the proposed and final regulations update the language of 1.301-1 to provide that the amount of a distribution of property made by a corporation to its shareholder is the fair market value of the distributed property. 

While the content of the final regulations is not surprising, they provide clarity and conformity to the statutory framework of section 301. Moreover, since this is merely updating for a legal change that occurred years ago, this finalized regulation is not a change in the law, rather it is just long-overdue housekeeping.

 

1T.D. 9954.

2REG-121694-16.

3Pub. L. 100-647, 102 Stat. 3342.

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This article was written by Mark Schneider, Nate Meyers and originally appeared on 2021-09-22.
2021 RSM US LLP. All rights reserved.
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