Distributions by corporations

# A.

Definition of dividend. The term "dividend" when used in this Chapter (except in R.S. 47:223 and 47:226, relating to insurance companies) means any distribution made by a corporation to its shareholders, whether in money or in other property, out of its earnings or profits accrued since December 31, 1933.

# B.

Source of distribution. For the purpose of this Chapter every distribution is made out of earnings or profits to the extent thereof, and from the most recent accumulated earnings or profits.

# C.

Distribution in liquidation. Amounts distributed in complete liquidation of a corporation shall be treated as in full payment in exchange for the stock, and amounts distributed in partial liquidation of a corporation shall be treated as in part of full payment in exchange for stock. The gain or loss to the distributee resulting from such exchange shall be determined under R.S. 47:131 but shall be recognized only to the extent provided in R.S. 47:132 through 47:138. In the case of amounts distributed in partial liquidation, the part of such distribution which is properly chargeable to the capital account shall not be considered a distribution of earnings or profits within the meaning of Subsection B of this Section for the purpose of determining the taxability of subsequent distributions by the corporation.

# D.

Other distributions from capital. If any distribution (not in partial or complete liquidation) made by a corporation to its shareholders is not out of earnings or profits, then the amount of such distribution shall be applied against and reduce the adjusted basis of the stock provided in R.S. 47:139, and if in excess of such basis, such excess shall be taxable in the same manner as a gain from the sale or exchange of property.

# E.

Distributions of stock and stock rights.

# (1)

General rule. Except as provided in Subsection E(2) of this Section, gross income does not include the amount of any distribution made by a corporation to its shareholders, with respect to the stock of such corporation, in its stock or in rights to acquire its stock.

# (2)

Distributions in lieu of money. Subsection E(1) of this Section shall not apply to a distribution by a corporation of its stock (or rights to acquire its stock), and the distribution shall be treated as a distribution of property,

(a) to the extent that the distribution is made in discharge of preference dividends for the taxable year of the corporation in which the distribution is made or for the preceding taxable year; or

(b) if the distribution is, at the election of any of the shareholders (whether exercised before or after the declaration thereof), payable either,

(i) in its stock (or in rights to acquire its stock), or

(ii) in property.

# (3)

Basis of stock and stock rights acquired in distributions.

(a) General rule. If a shareholder in a corporation received its stock or rights to acquire its stock (referred to in this subparagraph as "new stock") in a distribution to which Subsection E(1) applies, then the basis of such new stock and of the stock with respect to which it is distributed (referred to in this paragraph as "old stock"), respectively, shall, in the shareholder's hands, be determined by allocating between the old stock and the new stock the adjusted basis of the old stock. Such allocation shall be made under the regulations prescribed by the collector.

(b) Exceptions for certain stock rights.

(i) In general. If,

(A) a corporation distributes rights to acquire its stock to a shareholder in a distribution to which Subsection E(1) of this Section applies, and

(B) the fair market value of such rights at the time of the distribution is less than 15% of the fair market value of the old stock at such time, then Subsection E(3)(a) of this Section shall not apply and the basis of such rights shall be zero, unless the taxpayer elects under Subsection E(3)(b)(ii) of this Section to determine the basis of the old stock and of the stock rights under the method of allocation provided in Subsection E(3)(a) of this Section.

(ii) Election. The election referred to in Subsection E(3)(b)(i) 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 collector may by regulations prescribe, and shall be irrevocable when made.

# F.

Redemption of stock. If a corporation cancels or redeems its stock (whether or not such stock was issued as a stock dividend) at such time and in such manner as to make the distribution and cancellation or redemption in whole or in part essentially equivalent to the distribution of a taxable dividend, the amount so distributed in redemption or cancellation of the stock, to the extent that it represents a distribution of earnings or profits, shall be treated as a taxable dividend.

# G.

Definition of partial liquidation. As used in this Section, the term "amounts distributed in partial liquidation" means a distribution by a corporation in complete cancellation or redemption of a part of its stock, or one of a series of distributions in complete cancellation or redemption of all or a portion of its stock.

# H.

Situs of stock cancelled or redeemed in liquidation. In cases where property located in Louisiana is received by a shareholder in the liquidation of a corporation, the stock cancelled or redeemed in the liquidation shall, for purposes of determining taxable gain under this Chapter, be deemed to have its taxable situs in this state to the extent that the property of the corporation distributed in liquidation is located in Louisiana. If only a portion of the property distributed in liquidation is located in Louisiana, only a corresponding portion of the gain realized by a shareholder shall be considered to be derived from Louisiana sources. Nothing in this Subsection shall be construed to mean that gain or loss shall be recognized upon the transfer of property in a merger of corporations where the basis of the property in the hands of the merging corporation is carried forward as the basis in the hands of the continuing corporation.