Final Regulations Update Section 301 Regulations to Reflect Statutory Changes
Final regulations under Code Sec. 301 update the existing regulations under this provision to reflect statutory changes made by the Technical and Miscellaneous Revenue Act of 1988 ( P.L. 100-647) (the 1988 Act). These changes generally provide that the amount of a Section 301 distribution of property made by a corporation to its shareholder is the fair market value of the distributed property. The final Section 301 regulations adopt prior proposed regulations ( NPRM REG-121694-16), without substantive changes, and apply generally to distributions made after September 22, 2021.
Code Sec. 301 and Amendments by the Technical and Miscellaneous Revenue Act of 1988
Code Sec. 301 provides rules for the treatment of a distribution of property, including money, made by a corporation to its shareholder with respect to that shareholder’s stock ownership in that corporation (a Section 301 distribution).
The 1988 Act amended Code Sec. 301(b)(1) to provide that the amount of any Section 301 distribution is the amount of money received plus the fair market value of the other property received. The 1988 Act also amended Code Sec. 301(d) to provide that the basis of property received in a Section 301 distribution is the fair market value of such property (both amendments, collectively, are referred to as the 1988 amendments).
The current Section 301 regulations reflect the rules of these two provisions as they existed prior to the 1988 amendments. Accordingly, to the extent preempted by statute, the current regulations have no application.
2019 Proposed Regulations
In 2019, the IRS issued proposed regulations under Code Sec. 301 ( NPRM REG-121694-16) to reflect the 1988 amendments (2019 proposed regulations). The scope of the 2019 proposed regulations was limited to:
- deleting provisions made obsolete by statutory changes;
- making minor additions and revisions to reflect current statutory text;
- making certain non-substantive changes for purposes of clarity and readability, including reordering and redesignating paragraphs; and
- amending cross-references in regulations under other provisions to reflect the proposed reordering and redesignating of paragraphs in the Section 301 regulations.
The final Section 301 regulations adopt the 2019 proposed regulations with no substantive changes and with certain non-substantive changes for purposes of clarity and readability. The final regulations apply to Section 301 distributions made after September 22, 2021. However, these regulations update the previous regulations under Code Sec. 301 to reflect the statutory changes made by the 1988 Act, which apply to distributions made in tax years beginning after December 31, 1986.