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Federal Register / Vol. 86, No. 181 / Wednesday, September 22, 2021 / Rules and Regulations regulations, see the Explanation of Provisions section in the preamble to the 2019 proposed regulations at 84 FR
11264.
The Department of the Treasury Treasury Department and the IRS
received no comments on the 2019
proposed regulations, and no public hearing was requested or held. This document adopts the 2019 proposed regulations as final regulations with no substantive changes and with certain non-substantive changes for purposes of clarity and readability.

List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations Accordingly, 26 CFR part 1 is amended as follows:
PART 1INCOME TAX REGULATIONS
Paragraph 1. The authority citation for part 1 continues to read in part as follows:

Authority: 26 U.S.C. 7805

Applicability Date The final regulations apply to distributions made after September 22, 2021. However, these regulations update the previous regulations under section 301 to reflect statutory changes made by the 1988 Amendments, which apply to distributions made in taxable years beginning after December 31, 1986.
Special Analyses This regulation is not subject to review under section 6b of Executive Order 12866 pursuant to the Memorandum of Agreement April 11, 2018 between the Treasury Department and the Office of Management and Budget regarding review of tax regulations.
Pursuant to the Regulatory Flexibility Act 5 U.S.C. chapter 6, it is hereby certified that these final regulations will not have a significant economic impact on a substantial number of small entities within the meaning of section 6016 of the Regulatory Flexibility Act. The Treasury Department and the IRS have determined that no additional burden will be associated with these final regulations. Therefore, a regulatory flexibility analysis is not required.
Accordingly, the Secretarys delegate certifies that these regulations will not have a significant economic impact on a substantial number of small entities.
Pursuant to section 7805f, the notice of proposed rulemaking preceding this regulation has been submitted to the Chief Counsel for the Office of Advocacy of the Small Business Administration for comment on its impact on small business. No comments were received from the Chief Counsel for the Office of Advocacy of the Small Business Administration.
Drafting Information The principal author of these regulations is Grid R. Glyer of the Office of Associate Chief Counsel Corporate.
Other personnel from the Treasury Department and the IRS participated in developing these regulations.

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Par. 2. Section 1.3011 is revised to read as follows:

1.3011 Rules applicable with respect to distributions of money and other property.

a General. Section 301 provides the general rule for the treatment of distributions made in taxable years beginning after December 31, 1986, of property by a corporation to a shareholder with respect to its stock.
The term property is defined in section 317a. Except as otherwise provided in chapter 1 of the Internal Revenue Code Code, such distributions are treated as provided in section 301c. Under section 301c, distributions may be included in gross income to the extent the amount distributed is considered a dividend under section 316, applied against and reduces the adjusted basis of the stock, treated as gain from the sale or exchange of property, or exempt from Federal income tax in the case of certain distributions out of increase in value accrued before March 1, 1913. The amount of a distribution to which section 301 applies is determined in accordance with the provisions of section 301b. The basis of property received in a distribution to which section 301 applies is the fair market value of the property, as provided in section 301d.
b Amount of distribution and determination of fair market value. The amount of a distribution to which section 301 applies is the amount of money received in the distribution, plus the fair market value of other property received in the distribution. The fair market value of any property distributed is determined as of the date of the distribution.
c Time of inclusion in gross income and time of determination of fair market value. A distribution made by a corporation to its shareholders is included in the gross income of the distributees when the cash or other property is unqualifiedly made subject to their demands, without regard to whether such date is the same as that on
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which the corporation made the distribution. For example, if a corporation distributes a taxable dividend in property on December 30, 2021, that is received by, or unqualifiedly made subject to the demands of, its shareholders on January 3, 2022, the amount to be included in the gross income of the shareholders will be the fair market value of such property on December 30, 2021, determined under paragraph b of this section, although such amount will not be includible in the gross income of the shareholders until January 3, 2022.
d Application of section to shareholders. Section 301 is not applicable to an amount paid by a corporation to a shareholder unless the amount is paid to the shareholder in the shareholders capacity as such.
e Example. Corporation M, formed in 1998, has never been an acquiring corporation in a transaction to which section 381a applies. On January 1, 2021, A, an individual, owned all of the stock of Corporation M, consisting of a single share with an adjusted basis of $2,000. During 2021, A received distributions from Corporation M
totaling $30,000, consisting of $10,000
in cash and listed securities having a basis in the hands of Corporation M and a fair market value on the date distributed of $20,000. Corporation Ms taxable year is the calendar year. As of December 31, 2020, Corporation M had accumulated earnings and profits in the amount of $26,000, and it had no earnings and profits and no deficit for 2021. Of the $30,000 received by A, $26,000 is treated as an ordinary dividend; of the remaining $4,000, $2,000 is applied against and reduces the adjusted basis of As stock under section 301c2, and the $2,000 in excess of the adjusted basis of As stock is treated as gain from the sale or exchange of property under section 301c3A. If A immediately sells the stock in Corporation M, the basis for determining gain or loss on the sale will be zero.
f Reduction for liabilities1
General rule. For purposes of section 301b2, no reduction in the amount of a distribution is made for the amount of any liability, except to the extent the liability is assumed by the shareholder within the meaning of section 357d.
2 No reduction below zero. Any reduction pursuant to paragraph f1 of this section does not cause the amount of the distribution to be reduced below zero.
3 Applicability datesi In general.
This paragraph f applies to distributions occurring after January 4, 2001.

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