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74TH CONGRESS . SESS. II. CH. 690. JUNE 22, 1936. Amounts distributed first of the series of distributions under the plan . In the case of in partial liquidation . amounts distributed (whether before January 1, 1934, or on or after such date) in partial liquidation (other than a distribution within the provisions of subsection (h) of this section of stock or securities in connecti on with a reorg anizati on) the part of such d istribut ion whi ch is pr operly chargeab le to c apital a ccount shall n ot be co n- si dered a d istri buti on of earnings or pr ofits . Other distributions (d) OTHER DISTRIBUTIONS FROM CAPI TAL .- If any distri bution from capi tal . Not out of increase (not in partial or complete liquidation) made by a corporation to its in value before March shareholders is not out of increase in value of accrued 1, 1913, nor a dividend .
pr oper ty before March 1, 1913, and is not a dividend, then the amount of such distribution shall be applied against and reduce the adjusted basis of Ant,-, p. 1682.
the stock provided in section 113, and if in excess of such basis, such excess shall be taxable in the same manner as a gain from the sale or exchange of pro perty . Distributions by per- (e) DISTRIBUTIONS BY PERSONAL SERVICE CORPORATIONS .Any dis- sonal service corpora- tions .
tribution made by a corporation, which was classified as a personal Vol .40,p.1 ns Vol .
Vol . service corporation under the provisions of the Revenue Act of 1918 , 42,p.245. or the Revenue Act of 1921, out of its earnings or profits which were taxable in accordance with the provisions of section 218 of the Reve- nue Act of 1918 or section 218 of the Revenue Act of 1921, shall be exempt from tax to the distributees . Stock dividends .
(f) S T OC K DIVIDENDS .- General rule . (1) GENERAL RULE .-A distribution made by a corporation to its shareholders in its stock or in rights to acquire its stock sha ll not be treated as a dividend to the extent that it does not constitute income to the shareholder within the meaning of the Sixteenth Amendment to the Constitution . El ecti on of sha re- hol ders
(2) ELECTION OF SHAREHOLDERS AS TO MEDIUM OF PAYMENT.- payment . t o medium of payment . Whenever a distribution by a corporation is, at the election of any of the shareholders (whether exercised before or after the declara- tion thereof), payable either (A) in its stock or in rights to acquire its stock, of a class which if distributed without election would be exempt from tax under paragraph (1), or (B) in money or any other property (including its stock or in rights to acquire its sto ck, of a class which if d istributed without electi on would not be exe mpt from tax under par agraph (1)), then the distribution shall c onstitute a taxable divid end in the hands of all s hareholders, re ardless of the medium in whic h paid . Redemption of stock. (g REDEMPTION OF STOCK .-If a corporation cancels or redeems its stock (whether or not such stock was issued as a stock dividend) at such time and in such manner as to make the distribution and cancellation or redemption in whole or in part essentially equivalent to the distribution of a taxable dividend, the amount so distributed in redemption or cancellation of the stock , to the extent that it re pre- sents a distr ibution of earn ings or profits accumu lated af ter Feb - ruary 28, 1913, shall be treated as a taxable dividend. Effect on earnings (h) EF FECT ON EARN INGS AND PR OFI TS OF DISTRIBUTIONS OF and profits of distri- butio ns of stock . STOCK .-The distribution (whether before January 1, 1936, or on or after such date) to a distributee by or on behalf of a corporation of its stock or securities or stock or securities in another corporation shall not be considered a distribution of earnings or profits of any cor porat ion- (1) if no gain to such distributee from the receipt of such stock or securities was recognized by law, or (2) if the distribution was not subject to tax in the hands of such distributee because it did not constitute income to him within the meaning of the Sixteenth Amendment to the Constitution or
