tion unless, before such exchange, it has been established to the satisfaction of the Secretary or his delegate that such exchange is not in pursuance of a plan having as one of its principal purposes the avoidance of Federal income taxes. For purposes of this section, any distribution described in section 355 (or so much of section 356 as relates to section 355) shall be treated as an exchange whether or not it is an exchange.

SEC. 368. DEFINITIONS RELATING TO CORPORATE REORGANIZATIONS.

(a) REORGANIZATION.—

(1) IN GENERAL.-For purposes of parts I and II and this part, the term "reorganization" means

(A) a statutory merger or consolidation;

(B) the acquisition by one corporation, in exchange solely for all or a part of its voting stock, of stock of another corporation if, immediately after the acquisition, the acquiring corporation has control of such other corporation (whether or not such acquiring corporation had control immediately before the acquisition);

(C) the acquisition by one corporation, in exchange solely for all or a part of its voting stock (or in exchange solely for all or a part of the voting stock of a corporation which is in control of the acquiring corporation), of substantially all of the properties of another corporation, but in determining whether the exchange is solely for stock the assumption by the acquiring corporation of a liability of the other, or the fact that property acquired is subject to a liability, shall be disregarded;

(D) a transfer by a corporation of all or a part of its assets to another corporation if immediately after the transfer the transferor, or one or more of its shareholders (including persons who were shareholders immediately before the transfer), or any combination thereof, is in control of the corporation to which the assets are transferred; but only if, in pursuance of the plan, stock or securities of the corporation to which the assets are transferred are distributed in a transaction which qualifies under section 354, 355, or 356;

(E) a recapitalization; or

(F) a mere change in identity, form, or place of organization, however effected.

(2) SPECIAL RULES RELATING TO PARAGRAPH (1).—

(A) REORGANIZATIONS DESCRIBED IN BOTH PARAGRAPH (1) (C) AND PARAGRAPH (1) (D).—If a transaction is described in both paragraph (1) (C) and paragraph (1) (D), then, for purposes of this subchapter, such transaction shall be treated as described only in paragraph (1) (D).

(B) ADDITIONAL CONSIDERATION IN CERTAIN PARAGRAPH (1) (c) CASES.-If

(i) one corporation acquires substantially all of the properties of another corporation,

(ii) the acquisition would qualify under paragraph (1) (C) but for the fact that the acquiring corporation exchanges money or other property in addition to voting stock, and

(iii) the acquiring corporation acquires, solely for voting stock described in paragraph (1) (C), property of the other

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§ 368(a) (2) (B) (iii)

corporation having a fair market value which is at least 80 percent of the fair market value of all of the property of the other corporation,

then such acquisition shall (subject to subparagraph (A) of this paragraph) be treated as qualifying under paragraph (1) (C). Solely for the purpose of determining whether clause (iii) of the preceding sentence applies, the amount of any liability assumed by the acquiring corporation, and the amount of any liability to which any property acquired by the acquiring corporation is subject, shall be treated as money paid for the property.

(C) TRANSFERS OF ASSETS TO SUBSIDIARIES IN CERTAIN PARAGRAPH (1) (A) AND (1) (C) CASES.-A transaction otherwise qualifying under paragraph (1) (A) or paragraph (1) (C) shall not be disqualified by reason of the fact that part or all of the assets which were acquired in the transaction are transferred to a corporation controlled by the corporation acquiring such assets. (b) PARTY TO A REORGANIZATION.-For purposes of this part, the term "a party to a reorganization" includes

(1) a corporation resulting from a reorganization, and

(2) both corporations, in the case of a reorganization resulting from the acquisition by one corporation of stock or properties of another.

In the case of a reorganization qualifying under paragraph (1) (C) of subsection (a), if the stock exchanged for the properties is stock of a corporation which is in control of the acquiring corporation, the term "a party to a reorganization" includes the corporation so controlling the acquiring corporation. In the case of a reorganization qualifying under paragraph (1) (A) or (1) (C) of subsection (a) by reason of paragraph (2) (C) of subsection (a), the term "a party to a reorganization" includes the corporation controlling the corporation to which the acquired assets are transferred.

(c) CONTROL. For purposes of part I (other than section 304), part II, and this part, the term "control" means the ownership of stock possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote and at least 80 percent of the total number of shares of all other classes of stock of the corporation.

PART IV-INSOLVENCY REORGANIZATIONS

Sec. 371. Reorganization in certain receivership and bankruptcy proceedings.

Sec. 372. Basis in connection with certain receivership and bankruptcy proceedings.

Sec. 373. Loss not recognized in certain railroad reorganizations. Sec. 374. Gain or loss not recognized in certain railroad reorganizations.

SEC. 371. REORGANIZATION IN CERTAIN RECEIVERSHIP AND BANKRUPTCY PROCEEDINGS.

(a) EXCHANGES BY CORPORATIONS.

(1) IN GENERAL.-No gain or loss shall be recognized if property of a corporation (other than a railroad corporation, as defined in section 77 (m) of the Bankruptcy Act (49 Stat. 922; 11 U. S. C.

205)) is transferred in pursuance of an order of the court having jurisdiction of such corporation—

(A) in a receivership, foreclosure, or similar proceeding, or

(B) in a proceeding under chapter X of the Bankruptcy Act (52 Stat. 883-905; 11 U. S. C., chapter 10) or the corresponding provisions of prior law,

to another corporation organized or made use of to effectuate a plan of reorganization approved by the court in such proceeding, in exchange solely for stock or securities in such other corporation.

(2) GAIN FROM EXCHANGES NOT SOLELY IN KIND.-If an exchange would be within the provisions of paragraph (1) if it were not for the fact that the property received in exchange consists not only of stock or securities permitted by paragraph (1) to be received without the recognition of gain, but also of other property or money, then

(A) if the corporation receiving such other property or money distributes it in pursuance of the plan of reorganization, no gain to the corporation shall be recognized from the exchange, but

(B) if the corporation receiving such other property or money does not distribute it in pursuance of the plan of reorganization, the gain, if any, to the corporation shall be recognized, but in an amount not in excess of the sum of such money and the fair market value of such other property so received, which is not so distributed.

(b) EXCHANGES BY SECURITY HOLDERS.

(1) IN GENERAL.-No gain or loss shall be recognized on an exchange consisting of the relinquishment or extinguishment of stock or securities in a corporation the plan of reorganization of which is approved by the court in a proceeding described in subsection (a), in consideration of the acquisition solely of stock or securities in a corporation organized or made use of to effectuate such plan of reorganization.

(2) GAIN FROM EXCHANGES NOT SOLELY IN KIND.-If an exchange would be within the provisions of paragraph (1) if it were not for the fact that the property received in exchange consists not only of property permitted by paragraph (1) to be received without the recognition of gain, but also of other property or money, then the gain, if any, to the recipient shall be recognized, but in an amount not in excess of the sum of such money and the fair market value of such other property.

(c) LOSS FROM EXCHANGES NOT SOLELY IN KIND.-If an exchange would be within the provisions of subsection (a) (1) or (b) (1) if it were not for the fact that the property received in exchange consists not only of property permitted by subsection (a) (1) or (b) (1) to be received without the recognition of gain or loss, but also of other property or money, then no loss from the exchange shall be recognized. (d) ASSUMPTION OF LIABILITIES.-In the case of a transaction involving an assumption of a liability or the acquisition of property subject to a liability, the rules provided in section 357 shall apply.

SEC. 372. BASIS IN CONNECTION WITH CERTAIN RECEIVERSHIP AND BANKRUPTCY PROCEEDINGS.

(a) CORPORATION.-If property was acquired by a corporation in a transfer to which

(1) section 371 (a) applies,

(2) so much of section 371 (c) as relates to section 371 (a) (1) applies, or

(3) the corresponding provisions of prior law apply,

then notwithstanding the provisions of section 270 of the Bankruptcy Act (54 Stat. 709; 11 U. S. C. 670), the basis in the hands of the acquiring corporation shall be the same as it would be in the hands of the corporation whose property was so acquired, increased in the amount of gain recognized to the corporation whose property was so acquired under the law applicable to the year in which the acquisition occurred, and such basis shall not be adjusted under section 1017 by reason of a discharge of indebtedness in pursuance of the plan of reorganization under which such transfer was made.

(b) ADJUSTMENT FOR DEPRECIATION SUSTAINED BEFORE MARCH 1, 1913, IN CERTAIN CASES OF PROPERTY ACQUIRED FROM RETIREMENT METHOD CORPORATIONS.

(1) IN GENERAL.-If the taxpayer has acquired property in a transaction described in section 373 (b) or 374 (b), and if any such property constitutes retirement-straight line property, then, in determining the adjusted basis of all retirement-straight line property held by the taxpayer on his adjustment date, adjustment shall be made (in lieu of the adjustment provided in section 1016 (a) (3) (A)) for depreciation sustained before March 1, 1913, on retirement-straight line property which was held on such date for which cost was or is claimed as basis, and which either

(A) RETIRED BEFORE ACQUISITION BY TAXPAYER.-Was retired before the acquisition of the retirement-straight line property by the taxpayer, but only if a deduction was allowed in computing net income by reason of such retirement, and such deduction was computed on the basis of cost without adjustment for depreciation sustained before March 1, 1913. In the case of any such property retired during any taxable year beginning after December 31, 1929, the adjustment under this subparagraph shall not exceed that portion of the amount attributable to depreciation sustained before March 1, 1913, which resulted (by reason of the deduction so allowed) in a reduction in taxes under this subtitle or prior income, war-profits, or excess-profits tax laws.

(B) ACQUIRED BY TAXPAYER.-Was acquired by the taxpayer. The adjustment determined under this paragraph shall be allocated (in the manner prescribed by the Secretary or his delegate) among all retirement-straight line property held by the taxpayer on his adjustment date. Such adjustment shall apply to all periods on and after the adjustment date.

(2) RETIREMENT-STRAIGHT LINE PROPERTY DEFINED.-For purposes of this subsection, the term "retirement-straight line property" means any property of a kind or class with respect to which (A) the corporation transferring such property to the taxpayer was using (at the time of transfer) the retirement method of computing the allowance of deductions for depreciation, and (B) the acquiring

corporation has adopted any other method of computing such allowance.

(3) OTHER DEFINITIONS.-For purposes of this subsection:

(A) DEPRECIATION.-The term "depreciation" means exhaustion, wear and tear, and obsolescence.

(B) ADJUSTMENT DATE. In the case of any kind or class of property, the term "adjustment date" means whichever of the following is the later:

(i) the first day of the taxpayer's first taxable year beginning after December 31, 1955, or

(ii) the first day of the first taxable year in which the taxpayer uses a method of computing the allowance of deductions for depreciation other than the retirement method.

(c) STOCK OR SECURITY HOLDER.

For basis of stock or securities acquired under section 371 (b), see section 358.

SEC. 373. LOSS NOT RECOGNIZED IN CERTAIN RAILROAD REORGANIZATIONS.

(a) NONRECOGNITION OF Loss.-No loss shall be recognized if property of a railroad corporation, as defined in section 77 (m) of the Bankruptcy Act (49 Stat. 922; 11 U. S. C. 205), is transferred before August 1, 1955, in pursuance of an order of the court having jurisdiction of such corporation

(1) in a receivership proceeding, or

(2) in a proceeding under section 77 of the Bankruptcy Act, to a railroad corporation (as defined in section 77 (m) of the Bankruptcy Act) organized or made use of to effectuate a plan of reorganization approved by the court in such proceeding.

(b) BASIS.

(1) RAILROAD CORPORATIONS.-If the property of a railroad corporation (as defined in section 77 (m) of the Bankruptcy Act) was acquired after December 31, 1938, and before August 1, 1955, in pursuance of an order of the court having jurisdiction of such corporation

(A) in a receivership proceeding, or

(B) in a procceding under section 77 of the Bankruptcy Act, and the acquiring corporation is a railroad corporation (as defined in section 77 (m) of the Bankruptcy Act) organized or made use of to effectuate a plan of reorganization approved by the court in such proceeding, the basis shall be the same as it would be in the hands of the railroad corporation whose property was so acquired. (2) PROPERTY acquired by STREET, SUBURBAN, OR INTERURBAN ELECTRIC RAILWAY CORPORATION.-If the property of any street, suburban, or interurban electric railway corporation engaged as a common carrier in the transportation of persons or property in interstate commerce was acquired after December 31, 1934, in pursuance of an order of the court having jurisdiction of such corporation in a proceeding under section 77B of the Bankruptcy Act (48 Stat. 912), and the acquiring corporation is a street, suburban, or interurban electric railway engaged as a common carrier in the transportation of persons or property in interstate commerce, organized or made use of to effectuate a plan of reorganization approved by the court in such proceeding, then, notwithstanding