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A corporation that distributes property that has appreciated in value must recognize a gain at the time of distribution. The corporation is treated as if it had sold the property. The gain equals the property's fair market value less its adjusted basis. Code Sec. (b). However, the corporation does not recognize a loss if the property had declined in value. Also, the corporation recognizes no gain or loss if t distributes its own stock rights to its shareholders. Code Sec. (a). The character of the recognized gain depends on the property distributed; thus it may be ordinary income, capital gain, or Section 1231 gain.
An example illustrating this section was the Tax Court, deciding in favor of the IRS, held in Pope & Talbot, Inc., v. Com, 104 TC __, No. 29, that a corporation which distributed discrete partnership units of property composed of timber and resort interests in the Northwest, must recognize distribution gain under IRC Sec. 311(d) as if it had instead sold the entire......

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