Finally: Section 336(e) Options for Qualified Stock Dispositions

The old General Utilities doctrine provided for nontaxable treatment of corporate liquidations, thereby preventing multiple levels of taxation from being levied against a single economic gain. When Congress repealed the General Utilities doctrine as part of the Tax Reform Act of 1986, it enacted IRC Section 336(e) to do the job of removing the burden of multiple taxation levels from certain corporate sales, exchanges, and distributions. Nearly three decades after Section 336(e) was enacted, the IRS and Department of Treasury issued final regulations making the statutory section effective for certain stock dispositions on or after May 15, 2013. Parties to a transaction involving the sale or exchange of the subsidiary's stock should consider the wherewithal of the corporation to make a unilateral Section 336(e) election when negotiating the terms and conditions of the transaction. Absent a Section 336(e) election, assuming the subsidiary eventually sold its underlying assets in addition to the foregoing taxable events, the distribution of appreciated stock to the corporation's shareholders would represent a taxable transaction under Section 311(b).