Dispositions of certain stock

If a shareholder sells or otherwise disposes of section 306 stock (as defined in subsection (c))— If such disposition is not a redemption (within the meaning of section 317(b))— The amount realized shall be treated as ordinary income. This subparagraph shall not apply to the extent that— Any excess of the amount realized over the sum of— If the disposition is a redemption, the amount realized shall be treated as a distribution of property to which section 301 applies. Subsection (a) shall not apply— If the disposition— If the disposition is a redemption and paragraph (3) or (4) of section 302(b) applies. If the section 306 stock is redeemed in a distribution in complete liquidation to which part II (sec. 331 and following) applies. To the extent that, under any provision of this subtitle, gain or loss to the shareholder is not recognized with respect to the disposition of the section 306 stock. If it is established to the satisfaction of the Secretary— For purposes of this subchapter, the term “section 306 stock” means stock which meets the requirements of subparagraph (A), (B), or (C) of this paragraph. Stock (other than common stock issued with respect to common stock) which was distributed to the shareholder selling or otherwise disposing of such stock if, by reason of section 305(a), any part of such distribution was not includible in the gross income of the shareholder. Stock which is not common stock and— Except as otherwise provided in subparagraph (B), stock the basis of which (in the hands of the shareholder selling or otherwise disposing of such stock) is determined by reference to the basis (in the hands of such shareholder or any other person) of section 306 stock. For purposes of this section, the term “section 306 stock” does not include any stock no part of the distribution of which would have been a dividend at the time of the distribution if money had been distributed in lieu of the stock. The term “section 306 stock” also includes any stock which is not common stock acquired in an exchange to which section 351 applied if receipt of money (in lieu of the stock) would have been treated as a dividend to any extent. Rules similar to the rules of section 304(b)(2) shall apply— For purposes of paragraphs (1)(B)(ii) and (3), section 318(a) shall apply. For purposes of applying the preceding sentence to paragraph (3), the rules of section 304(c)(3)(B) shall apply. For purposes of this section— For purposes of subsection (c)— The amount treated under subsection (a)(1)(A) as ordinary income shall, for purposes of part I of subchapter N (sec. 861 and following, relating to determination of sources of income), be treated as derived from the same source as would have been the source if money had been received from the corporation as a dividend at the time of the distribution of such stock. If under the preceding sentence such amount is determined to be derived from sources within the United States, such amount shall be considered to be fixed or determinable annual or periodical gains, profits, and income within the meaning of section 871(a) or section 881(a), as the case may be. If a substantial change is made in the terms and conditions of any stock, then, for purposes of this section—