CH. I—NORMAL TAXES AND SURTAXES
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(3) DETERMINATION OF FAIR MARKET VALUE.—For purposes of
this section, fair market value shall be determined as of the date of the distribution. (c) AMOUNT T A X A B L E. — I n the case of a distribution to which subsection (a) applies— (1) AMOUNT CONSTITUTING DIVIDEND.—That portion of the distribution which is a dividend (as defined in section 316) shall be included in gross income. (2) AMOUNT APPLIED AGAINST BASIS.—That portion of the distribution which is not a dividend shall be applied against and reduce the adjusted basis of the stock. (3) AMOUNT IN EXCESS OF BASIS.—
(A) IN GENERAL.—Except as provided in subparagraph (B), that portion of the distribution which is not a dividend, to the extent that it exceeds the adjusted basis of the stock, shall be treated as gain from the sale or exchange of property. (B) DISTRIBUTIONS OUT OF INCREASE I N VALUE ACCRUED BEFORE MARCH 1, 1913.—That portion of the distribution which is
not a dividend, to the extent that it exceeds the adjusted basis of the stock and to the extent that it is out of increase in value accrued before March 1, 1913, shall be exempt from tax. (d) BASIS.—The basis of property received in a distribution to which subsection (a) applies shall be— (1) NONCORPORATE DISTRIBUTEES.—If the shareholder is not a corporation, the fair market value of such property. (2) CORPORATE DISTRIBUTEES.—If the shareholder is a corporation, whichever of the following is the lesser: (A) the fair market value of such property; or (B) the adjusted basis (in the hands of the distributing corporation immediately before the distribution) of such property, increased in the amount of gain to the distributing corporation which is recognized under subsection (b) or (c) of section 311. (e) EXCEPTION FOR CERTAIN DISTRIBUTIONS BY PERSONAL SERVICE CORPORATIONS.—Any distribution made by a corporation,
which was classified as a personal service corporation under the provisions of the Revenue Act of 1918 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 Revenue Act of 1918 (40 Stat. 1070), or section 218 of the Revenue Act of 1921 (42 Stat. 245), shall be exempt from tax to the distributees. (f) SPECIAL RULES. — (1) For distributions in redemption of stock, see section 302. (2) For distributions in partial or complete liquidation, see part II (sec. 331 and following). (3) For distributions in corporate organizations and reorganizations, see part III (sec. 351 and following). (4) For partial exclusion from gross income of dividends received by individuals, see section 116. SEC. 302. DISTRIBUTIONS IN REDEMPTION OF STOCK, (a) GENERAL RULE. — I f a corporation redeems its stock (within
the meaning of section 317(b)), and if paragraph (1), (2), (3), or (4) of subsection (b) applies, such redemption shall be treated as a distribution in part or full payment in exchange for the stock. § 302(a)
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