[Code of Federal Regulations]
[Title 26, Volume 11]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.1081-4]

[Page 191-192]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.1081-4  Exchanges of property for property by corporations.

    (a) Application of section 1081(b). Section 1081(b) applies only to 
the transfers specified therein with respect to which section 1081(d) is 
inapplicable, and deals only with such transfers if gain is realized 
upon the sale or other disposition effected by such transfers. If loss 
is realized section 1081(b) is inapplicable and the application of other 
provisions of subtitle A of the Code must be determined. See section 
1081(g). If section 1081(b) is applicable, the other provisions of 
subchapters C and O, chapter 1 of the Code, relating to the 
nonrecognition of gain are inapplicable, and the conditions under which, 
and the extent to which, the realized gain is not recognized are set 
forth in paragraphs (b), (c), (d), (e), and (f) of this section.
    (b) Nonrecognition of gain; no nonexempt proceeds. No gain is 
recognized to a transferor corporation upon the sale or other 
disposition of property transferred by such transferor corporation in 
exchange solely for property other than nonexempt property, as defined 
in section 1083(e), but only if all of the following requirements are 
satisfied:
    (1) The transferor corporation is, under the definition in section 
1083 (b), a registered holding company or an associate company of a 
registered holding company;
    (2) Such transfer is in obedience to an order of the Securities and 
Exchange Commission (as defined in section 1083 (a)) and such order 
satisfies the requirements of section 1081 (f);
    (3) The transferor corporation has filed the required consent to the 
regulations under section 1082(a)(2) (see paragraph (g) of this 
section); and
    (4) The entire amount of the gain, as determined under section 1001, 
can be applied in reduction of basis under section 1082(a)(2).
    (c) Nonrecognition of gain; nonexempt proceeds. If the transaction 
would be within the provisions of paragraph (b) of this section if it 
were not for the fact that the property received in exchange consists in 
whole or in part of nonexempt property (as defined in section 1083 (e)), 
then no gain is recognized if such nonexempt property, or an amount 
equal to the fair market value of such nonexempt property at the time of 
the transfer.
    (1) Is expended within the required 24-month period for property 
other than nonexempt property; or
    (2) Is invested within the required 24-month period as a 
contribution to the capital, or as paid-in surplus, of another 
corporation;

but only if the expenditure or investment is made
    (3) In accordance with an order of the Securities and Exchange 
Commission (as defined in section 1083 (a)) which satisfies the 
requirements of section 1081 (f) and which recites that such expenditure 
or investment by the transferor corporation is necessary or appropriate 
to the integration or simplification of the holding company system of 
which the transferor corporation is a member; and
    (4) The required consent, waiver, and bond have been executed and 
filed. See paragraphs (g) and (h) of this section.
    (d) Recognition of gain in part; insufficient expenditure or 
investment in case of nonexempt proceeds. If the transaction would be 
within the provisions of paragraph (c) of this section if it were not 
for the fact that the amount expended or invested is less than the fair 
market value of the nonexempt property received in exchange, then the 
gain, if any, is recognized, but in an amount not in excess of the 
amount by which the fair market value of such nonexempt property at the 
time of the transfer exceeds the amount so expended and invested.
    (e) Items treated as expenditures for the purpose of paragraphs (c) 
and (d) of this section. For the purposes of paragraphs

[[Page 192]]

(c) and (d) of this section, the following are treated as expenditures 
for property other than nonexempt property:
    (1) A distribution in cancellation or redemption (except a 
distribution having the effect of a dividend) of the whole or a part of 
the transferor's own stock (not acquired on the transfer);
    (2) A payment in complete or partial retirement or cancellation of 
securities representing indebtedness of the transferor or a complete or 
partial retirement or cancellation of such securities which is a part of 
the consideration for the transfer; and
    (3) If, on the transfer, a liability of the transferor is assumed, 
or property of the transferor is transferred subject to a liability, the 
amount of such liability.
    (f) Recognition of gain in part; inability to reduce basis. If the 
transaction would be within the provisions of paragraph (b) or (c) of 
this section, if it were not for the fact that an amount of gain cannot 
be applied in reduction of basis under section 1082(a)(2), then the 
gain, if any, is recognized, but in an amount not in excess of the 
amount which cannot be so applied in reduction of basis. If the 
transaction would be within the provisions of paragraph (d) of this 
section, if it were not for the fact that an amount of gain cannot be 
applied in reduction of basis under section 1082(a)(2), then the gain, 
if any, is recognized, but in an amount not in excess of the aggregate 
of--
    (1) The amount of gain which would be recognized under paragraph (d) 
of this section if there were no inability to reduce basis under section 
1082(a)(2); and
    (2) The amount of gain which cannot be applied in reduction of basis 
under section 1082(a)(2).
    (g) Consent to regulations under section 1082(a)(2). To be entitled 
to the benefits of the provisions of section 1081(b), a corporation must 
file with its return for the taxable year in which the transfer occurs a 
consent to have the basis of its property adjusted under section 
1082(a)(2) (see Sec. 1.1082-3), in accordance with the provisions of 
the regulations in effect at the time of filing of the return for the 
taxable year in which the transfer occurs. Such consent shall be made on 
Form 982 in accordance with these regulations and instructions on the 
form or issued therewith.
    (h) Requirements with respect to expenditure or investment. If the 
full amount of the expenditure or investment required for the 
application of paragraph (c) of this section has not been made by the 
close of the taxable year in which such transfer occurred, the taxpayer 
shall file with the return for such year an application for the benefit 
of the 24-month period for expenditure and investment, reciting the 
nature and time of the proposed expenditure or investment. When 
requested by the district director, the taxpayer shall execute and file 
(at such time and in such form) such waiver of the statute of 
limitations with respect to the assessment of deficiencies (for the 
taxable year of the transfer and for all succeeding taxable years in any 
of which falls any part of the period beginning with the date of the 
transfer and ending 24 months thereafter) as the district director may 
specify, and such bond with such surety as the district director may 
require, in an amount not in excess of double the estimated maximum 
income tax which would be payable if the corporation does not make the 
required expenditure or investment within the required 24-month period.

[T.D. 6500, 25 FR 11910, Nov. 26, 1960, as amended by T.D. 6751, 29 FR 
11356, Aug. 6, 1964; T.D. 7517, 42 FR 58935, Nov. 14, 1977]