Should General Utilities Be Reinstated to Provide Partial Integration of Corporate and Personal Income—Is Half a Loaf Better than None?

Authors

Douglas A. Kahn, University of Michigan Law SchoolFollow

Document Type

Article

Publication Date

1988

Abstract

The General Utilities doctrine is the name given to the now largely defunct tax rule that a corporation does not recognize a gain or a loss on making a liquidating or nonliquidating distribution of an appreciated or depreciated asset to its shareholders. The roots of the doctrine, can be traced to a regulation promulgated in 1919 that denied realization of gain or loss to a corporation when making a liquidating distribution of an asset in kind. No regulatory provision existed which specified the extent to which realization would or would not be triggered by a nonliquidating distribution such as a dividend or a stock redemption. In General Utilities & Operating Co. v. Helvering, a the Supreme Court adopted a nonrecognition rule for dividend distributions that are made in kind. In deference to that decision, the rule for nonrecognition of gain or loss on a liquidating or a nonliquidating corporate distribution of property in kind has been commonly referred to as the General Utilities doctrine. Congress codified the doctrine in the Internal Revenue Code of 1954. With few exceptions, the original provisions of the Code provided that a distributing corporation did not recognize a gain or loss on making a distribution in kind.

Recommended Citation

Kahn, Douglas A. "Should General Utilities Be Reinstated to Provide Partial Integration of Corporate and Personal Income—Is Half a Loaf Better than None?" J. Corp. L. 13 (1988): 953-95.