[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: 26CFR1.1081-6]

[Page 193-194]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.1081-6  Transfers within system group.

    (a) The nonrecognition of gain or loss provided for in section 
1081(d)(1) is applicable to an exchange of property for other property 
(including money and other nonexempt property) between corporations 
which are all members of the same system group. The term system group is 
defined in section 1083 (d).
    (b) Section 1081 (d)(1) also provides for nonrecognition of gain to 
a corporation which is a member of a system group if property (including 
money or other nonexempt property) is distributed to such corporation as 
a shareholder in a corporation which is a member of the same system 
group, without the surrender by such shareholder of stock or securities 
in the distributing corporation.
    (c) As stated in Sec. 1.1081-2, nonrecognition of gain or loss will 
not be accorded to a transaction not clearly provided for in part VI 
(section 1081 and following), subchapter O, chapter 1 of the Code, even 
though such transaction occurs simultaneously or in connection with an 
exchange, sale, or distribution to which nonrecognition is specifically 
accorded. Therefore, nonrecognition will not be accorded to any gain or 
loss realized from the discharge, or the removal of the burden, of the 
pecuniary obligations of a member of a system group, even though such 
obligations are acquired upon a transfer or distribution specifically 
described in section 1081 (d)(1); but the fact that the acquisition of 
such obligations was upon a transfer or distribution specifically 
described in section 1081 (d)(1) will, because of the basis provisions 
of section 1082 (d), affect the cost to the member of such discharge or 
its equivalent. Thus, section 1081 (d)(1) does not provide for the 
nonrecognition of any gain or loss realized from the discharge of the 
indebtedness of a member of a system group as the result of the 
acquisition in exchange, sale, or distribution of its own bonds, notes, 
or other evidences of indebtedness which were acquired by another member 
of the same system group for a consideration less or more than the 
issuing price thereof (with proper adjustments for amortization of 
premiums or discounts).
    (d) The provisions of paragraph (c) of this section may be 
illustrated by the following example:


[[Page 194]]


    Example: Suppose that the A Corporation and the B Corporation are 
both members of the same system group; that the A Corporation holds at a 
cost of $900 a bond issued by the B Corporation at par, $1,000; and that 
the A Corporation and the B Corporation enter into an exchange subject 
to the provisions of section 1081 (d)(1) in which the $1,000 bond of the 
B Corporation is transferred from the A Corporation to the B 
Corporation. The $900 basis reflecting the cost to the A Corporation 
which would have been the basis available to the B Corporation if the 
property transferred to it had been something other than its own 
securities (see Sec. 1.1082-6) will, in this type of transaction, 
reflect the cost to the B Corporation of effecting a retirement of its 
own $1,000 bond. The $100 gain of the B Corporation reflected in the 
retirement will therefore be recognized.

    (e) No exchange or distribution may be made without the recognition 
of gain or loss as provided for in section 1081 (d)(1), unless all the 
corporations which are parties to such exchange or distribution are 
acting in obedience to an order of the Securities and Exchange 
Commission. If an exchange or distribution is within the provisions of 
section 1081 (d)(1) and also may be considered to be within some other 
provisions of section 1081, it shall be considered that only the 
provisions of section 1081 (d)(1) apply and that the nonrecognition of 
gain or loss upon such exchange or distribution is by virtue of that 
section.