Tax Facts
7503 / How is a dividend paid in property taxed?
A dividend paid in property other than stock or stock rights of the distributing corporation is taxed in the same manner as a cash dividend (see Q 7502).1 A dividend paid in property other than cash is often referred to as a dividend “in kind.” For tax purposes, the amount of a dividend paid in kind is generally the fair market value of the property on the date of the distribution, with the value reduced by any liabilities encumbering the distributed property.2 See also Revenue Ruling 80-292,3 where the distribution by a wholly owned subsidiary of rights to acquire its stock to the shareholders of its parent was deemed for tax purposes to be a distribution by the parent corporation of a dividend “in kind” to its shareholders.
A dividend paid in rights to acquire stock in another corporation (i.e., not the distributing corporation) is a dividend in kind.4
The shareholder’s tax basis in property (including stock or stock rights) distributed in a taxable dividend is generally equal to the fair market value of that property on the date of the dividend distribution.5
If a dividend is paid in numismatic or bullion-type coins or currencies that have a fair market value in excess of their face values, the amount of the dividend is their aggregate fair market value.6
Proposed regulations – recovery of basis. The Service has proposed regulations providing guidance regarding the recovery of stock basis in distributions under IRC Section 301 to the extent the distributions are not treated as dividends (i.e., because the amount distributed exceeds the corporations’ earnings and profits). The primary objective of the proposed regulations is to provide a single model for stock basis recovery by a shareholder who receives a constructive or actual distribution to which Section 301 applies. The cornerstone of the proposed regulations is that a share of stock is the basic unit of property that can be disposed of and, accordingly, the results of a transaction should generally derive from the consideration received in respect of that share. The proposed regulations would treat a Section 301 distribution as received on a pro rata, share-by-share basis with respect to the class of stock upon which the distribution is made. The regulations will apply to transactions that occur after the date the final regulations are published in the Federal Register.7
1. IRC §§ 301(a), 317(a).
2. IRC § 301(b)(2); Treas. Reg. § 1.301-1(g).
3. 1980-2 CB 104.
4. Rev. Rul. 70-521, 1970-2 CB 72.
5. IRC § 301(d); Treas. Reg. § 1.301-1(a).
6. See Cordner v. U.S., 671 F.2d 367 (9th Cir. 1982).
7. Prop. Treas. Reg. § 1.301-2, REG-143686-07, 74 Fed. Reg. 3509, 3510 (Jan. 21, 2009).
A dividend paid in rights to acquire stock in another corporation (i.e., not the distributing corporation) is a dividend in kind.4
The shareholder’s tax basis in property (including stock or stock rights) distributed in a taxable dividend is generally equal to the fair market value of that property on the date of the dividend distribution.5
If a dividend is paid in numismatic or bullion-type coins or currencies that have a fair market value in excess of their face values, the amount of the dividend is their aggregate fair market value.6
Proposed regulations – recovery of basis. The Service has proposed regulations providing guidance regarding the recovery of stock basis in distributions under IRC Section 301 to the extent the distributions are not treated as dividends (i.e., because the amount distributed exceeds the corporations’ earnings and profits). The primary objective of the proposed regulations is to provide a single model for stock basis recovery by a shareholder who receives a constructive or actual distribution to which Section 301 applies. The cornerstone of the proposed regulations is that a share of stock is the basic unit of property that can be disposed of and, accordingly, the results of a transaction should generally derive from the consideration received in respect of that share. The proposed regulations would treat a Section 301 distribution as received on a pro rata, share-by-share basis with respect to the class of stock upon which the distribution is made. The regulations will apply to transactions that occur after the date the final regulations are published in the Federal Register.7
1. IRC §§ 301(a), 317(a).
2. IRC § 301(b)(2); Treas. Reg. § 1.301-1(g).
3. 1980-2 CB 104.
4. Rev. Rul. 70-521, 1970-2 CB 72.
5. IRC § 301(d); Treas. Reg. § 1.301-1(a).
6. See Cordner v. U.S., 671 F.2d 367 (9th Cir. 1982).
7. Prop. Treas. Reg. § 1.301-2, REG-143686-07, 74 Fed. Reg. 3509, 3510 (Jan. 21, 2009).
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