Section 33 Character of Gain Recognized

• Library: Bus Trans 2005

I.R.C. § 356(a)(2) provides that the recognized gain will be taxed as a dividend (to the extent of the shareholder’s pro rata share of accumulated earnings and profits of the corporation) if the transaction “has the effect of the distribution of a dividend,” and otherwise as capital gain. The I.R.C. § 318 ownership attribution rules apply in making this determination.

Revenue Ruling 74-515, 1974-2 C.B. 118, holds that, in determining whether a distribution has “the effect of the distribution of a...