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TITLE 26-INTERNAL REVENUE CODE stock and of the stock rights under the method of allocation provided in subsection (a). (2) Election The election referred to in paragraph (1) shall be made in the return filed within the time prescribed by law (including extensions thereof) for the taxable year in which such rights were received. Such election shall be made in such manner as the Secretary may by regulations prescribe, and shall be irrevo- cable when made. (c) Cross reference For basis of stock and stock rights distributed before June 22, 1954, see section 1052. (Aug. 16, 1954, ch. 736, 68A Stat. 93; Oct. 4, 1976, Pub. L. 94-455, title XIX, § 1906(b)(13)(A), 90 Stat. 1834.) AMENDMENTS 1976-Subsecs. (a), (b)(2). Pub. L. 94-455 struck out "or his delegate" following "Secretary". CRoss REFERENCES Capital gains and losses, determination of period for which taxpayer has held stock or rights to acquire stock received on a distribution, if basis is determined under this section, see section 1223 of this title. Corporate- Liquidations, basis of property received in corpo- rate liquidations, see section 334 of this title. Organizations, basis to distributees, see section 358 of this title. Effect on earnings and profits of receipt of tax free distributions, see section 312 of this title. SECTION REFEREIU TO IN OTHER SECTIONS This section is referred to in sections 312, 1223 of this title. SUBPART B-EFFECTS ON CORPORATION Sec. 311. Taxability of corporation on distribution. 312. Effect on earnings and profits. § 311. Taxability of corporation on distribution (a) General rule Except as provided in subsections (b), (c), and (d) of this section and section 453(d), no gain or loss shall be recognized to a corporation on the distribution, with respect to its stock, of- (1) its stock (or rights to acquire its stock), or (2) property, (b) LIFO inventory (1) Recognition of gain If a corporation inventorying goods under the method provided in section 472 (relating to last-in, first-out inventories) distributes in- ventory assets (as defined in paragraph (2)(A)), then the amount (if any) by which- (A) the inventory amount (as defined in paragraph (2)(B)) of such assets under a method authorized by section 471 (relating to general rule for inventories), exceeds (B) the inventory amount of such assets under the method provided in section 472, shall be treated as gain to the corporation recognized from the sale of such inventory assets. (2) Definitions For purposes of paragraph (1)- (A) Inventory assets The term "inventory assets" means stock in trade of the corporation, or other proper- ty of a kind which would properly be in- cluded in the inventory of the corporation if on hand at the close of the taxable year. (B) Inventory amount The term "inventory amount" means, in the case of inventory assets distributed during a taxable year, the amount of such inventory assets determined as if the tax- able year closed at the time of such distri- bution. (3) Method of determining inventory amount For purposes of this subsection, the inven- tory amount of assets under a method autho- rized by section 471 shall be determined- (A) if the corporation uses the retail method of valuing inventories under section 472, by using such method, or (B) if subparagraph (A) does not apply, by using cost or market, whichever is lower. (c) Liability in excess of basis If- (1) a corporation distribute property to a shareholder with respect to its stock, (2) such property is subject to a liability, or the shareholder assumes a liability of the cor- poration in connection with the distribution, and (3) the amount of such liability exceeds the adjusted basis (in the hands of the distribut- ing corporation) of such property, then gain shall be recognized to the distribut- ing corporation in an amount equal to such excess as if the property distributed had been sold at the time of the distribution. In the case of a distribution of property subject to a liabil- ity which is not a'umed by the shareholder, the amount of gain to be recognized under the preceding sentence shall not exceed the excess, if any, of the fair market value of such proper- ty over its adjusted basis. (d) Appreciated property used to redeem stock (1) In general If- (A) a corporation distributes property (other than an obligation of such corpora- tion) to a shareholder in a redemption (to which subpart A applies) of part or all of his stock in such corporation, and (B) the fair market value of such property exceeds its adjusted basis (in the hands of the distributing corporation), then a gain shall be recognized to the distrib- uting corporation in an amount equal to such excess as if the property distributed had been sold at the time of the distribution. Subsec- tions (b) and (c) shall not apply to any distri- bution to which this subsection applies. (2) Exceptions and limitations Paragraph (1) shall not apply to- (A) a distribution in complete redemption of all of the stock of a shareholder who, at all times within the 12-month period ending on the date of such distribution, owns at Page 239 § 311