102 STAT. 3580	PUBLIC LAW 100-647—NOV. 10, 1988
obligation of another corporation which is such a party
if such stock (or right) or obligation is received by the
distributing corporation in the exchange.
"(C) treatment of liabilities.—If any property distrib-
uted in the distribution referred to in paragraph (1) is
subject to a liability or the shareholder assumes a liability
of the distributing corporation in connection with the dis-
tribution, then, for purposes of subparagraph (A), the fair
market value of such property shall be treated as not less
than the amount of such liability.
"(3) treatment of certain transfers to creditors.—For
purposes of this subsection, any transfer of qualified property by
the corporation to its creditors in connection with the reorga-
nization shall be treated as a distribution to its shareholders
pursuant to the plan of reorganization.
"(4) coordination with other provisions.—Section 311 and
subpart B of part II of this subchapter shall not apply to any
distribution referred to in paragraph (I).^1'
(B)	Section 358 of the 1986 Code is amended by adding at the
end thereof the following new subsection:
"(f) definition of nonrecognition property in case of section
361 exchange.—For purposes of this section, the property per-
mitted to be received under section 361 without the recognition of
gain or loss shall be treated as consisting only of stock or securities
in another corporation a party to the reorganization."
(C)	Section 355 of the 1986 Code is amended by adding at the
end thereof the following new subsection:
"(c) taxability of corporation on distribution.—Section 311
shall apply to any distribution—
"(1) to which this section (or so much of section 356 as relates
to this section) applies, and
"(2) which is not in pursuance of a plan of reorganization,
in the same manner as if such distribution were a distribution to
which subpart A of part I applies; except that subsection (b) of
section 311 shall not apply to any distribution of stock or securities
in the controlled corporation."
(D)	Subsection (c) of section 336 of the 1986 Code (as amended
by section 631 of the Reform Act) is amended to read as follows:
"(c) exception for liquidations which are part of a reorga-
nization.—
"For provision providing that this subpart does not apply to distributions
in pursuance of a plan of reorganization, see section 361(c)(4)."
(E)	Subsection (a) of section 311 of the 1986 Code is amended
by striking out "distribution, with respect to its stock," and
inserting in lieu thereof "distribution (not in complete liquida-
tion) with respect to its stock".
(F)	The table of sections for subpart C of part III of subchapter
C of chapter 1 of the 1986 Code is amended by striking out the
item relating to section 361 and inserting in lieu thereof the
following new item:
"Sec. 361. Nonrecognition of gain or loss to corporations; treatment of dis-
tributions."
(G)	Effective with respect to transfers on or after June 21,
1988, section 351 of the 1986 Code is amended by redesignating