26 U.S.C. § 358 — Basis to distributees

Page 1136 TITLE 26—INTERNAL REVENUE CODE § 358 (B) the fair market value of such other as- sets (determined without regard to section 7701(g)). (3) Regulations The Secretary shall prescribe such regula- tions as may be necessary to carry out the purposes of this subsection and section 362(d). The Secretary may also prescribe regulations which provide that the manner in which a li- ability is treated as assumed under this sub- section is applied, where appropriate, else- where in this title. (Aug. 16, 1954, ch. 736, 68A Stat. 116; June 29, 1956, ch. 463, § 2, 70 Stat. 403; Pub. L. 95–600, title III, § 365(a), Nov. 6, 1978, 92 Stat. 2854; Pub. L. 96–222, title I, § 103(a)(12), Apr. 1, 1980, 94 Stat. 213; Pub. L. 96–589, § 4(h)(2), Dec. 24, 1980, 94 Stat. 3405; Pub. L. 101–508, title XI, § 11801(c)(8)(F), Nov. 5, 1990, 104 Stat. 1388–524; Pub. L. 106–36, title III, § 3001(a)(1), (b)(1), (d)(2)–(5), June 25, 1999, 113 Stat. 181–184; Pub. L. 106–554, § 1(a)(7) [title III, § 309(b)], Dec. 21, 2000, 114 Stat. 2763, 2763A–638; Pub. L. 108–357, title VIII, § 898(b), Oct. 22, 2004, 118 Stat. 1649; Pub. L. 109–135, title IV, § 403(jj)(2), Dec. 21, 2005, 119 Stat. 2632.) Editorial Notes AMENDMENTS 2005—Subsec. (d)(1). Pub. L. 109–135 inserted ‘‘section 361(b)(3),’’ after ‘‘section 358(h),’’. 2004—Subsec. (c)(1)(B). Pub. L. 108–357 inserted ‘‘with respect to which stock or securities of the corporation to which the assets are transferred are distributed in a transaction which qualifies under section 355’’ after ‘‘section 368(a)(1)(D)’’. 2000—Subsec. (d)(1). Pub. L. 106–554 inserted ‘‘section 358(h),’’ after ‘‘section 358(d),’’ in introductory provi- sions. 1999—Subsec. (a). Pub. L. 106–36, § 3001(d)(2), struck out ‘‘or acquisition’’ after ‘‘assumption’’ in concluding provisions. Subsec. (a)(2). Pub. L. 106–36, § 3001(a)(1), struck out ‘‘, or acquires from the taxpayer property subject to a liability’’ before comma at end. Subsec. (b). Pub. L. 106–36, § 3001(d)(2), (3), struck out ‘‘or acquisition’’ after ‘‘assumption’’ wherever appear- ing and struck out ‘‘or acquired’’ after ‘‘liability as- sumed’’ in concluding provisions of par. (1). Subsec. (c)(1). Pub. L. 106–36, § 3001(d)(4), struck out ‘‘, plus the amount of the liabilities to which the prop- erty is subject,’’ after ‘‘liabilities assumed’’ in con- cluding provisions. Subsec. (c)(3)(A). Pub. L. 106–36, § 3001(d)(5), struck out ‘‘or to which the property transferred is subject’’ after ‘‘liabilities assumed’’ in concluding provisions. Subsec. (d). Pub. L. 106–36, § 3001(b)(1), added subsec. (d). 1990—Subsecs. (a), (b)(1). Pub. L. 101–508, § 11801(c)(8)(F)(i), substituted ‘‘351 or 361’’ for ‘‘351, 361, 371, or 374’’ wherever appearing. Subsec. (c)(2). Pub. L. 101–508, § 11801(c)(8)(F)(ii), in- serted ‘‘or’’ at end of subpar. (A), redesignated subpar. (C) as (B), and struck out former subpar. (B) which read as follows: ‘‘to which section 371 or 374 applies, or’’. 1980—Subsec. (c)(2)(C). Pub. L. 96–589 added subpar. (C). Subsec. (c)(3)(A). Pub. L. 96–222 struck out require- ment that only taxpayers who compute taxable income under the cash receipts and disbursements method of accounting are eligible to exclude certain liabilities in determining the amount of gain realized on a transfer to a controlled corporation and the requirement that the excluded liability must be an account payable. 1978—Subsec. (c)(3). Pub. L. 95–600 added par. (3). 1956—Subsec. (a). Act June 29, 1956, § 2(1), substituted ‘‘371, or 374’’ for ‘‘or 371’’ in two places. Subsec. (b). Act June 29, 1956, § 2(1), substituted ‘‘371, or 374’’ for ‘‘or 371’’. Subsec. (c)(2)(B). Act June 29, 1956, § 2(2), substituted ‘‘371 or 374’’ for ‘‘371’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2005 AMENDMENT Amendment by Pub. L. 109–135 effective as if included in the provision of the American Jobs Creation Act of 2004, Pub. L. 108–357, to which such amendment relates, see section 403(nn) of Pub. L. 109–135, set out as a note under section 26 of this title. EFFECTIVE DATE OF 2004 AMENDMENT Pub. L. 108–357, title VIII, § 898(c), Oct. 22, 2004, 118 Stat. 1649, provided that: ‘‘The amendments made by this section [amending this section and section 361 of this title] shall apply to transfers of money or other property, or liabilities assumed, in connection with a reorganization occurring on or after the date of the en- actment of this Act [Oct. 22, 2004].’’ EFFECTIVE DATE OF 2000 AMENDMENT Amendment by Pub. L. 106–554 applicable to assump- tions of liability after Oct. 18, 1999, see section 1(a)(7) [title III, § 309(d)] of Pub. L. 106–554, set out as a note under section 358 of this title. EFFECTIVE DATE OF 1999 AMENDMENT Amendment by Pub. L. 106–36 applicable to transfers after Oct. 18, 1998, see section 3001(e) of Pub. L. 106–36, set out as a note under section 351 of this title. EFFECTIVE DATE OF 1980 AMENDMENTS Amendment by Pub. L. 96–589 applicable to bank- ruptcy cases or similar judicial proceedings com- mencing after Dec. 31, 1980, with exception permitting the debtor to make the amendment applicable to such cases or proceedings commencing after Sept. 30, 1979, see section 7(c)(1), (f) of Pub. L. 96–589, set out as a note under section 108 of this title. Amendment by Pub. L. 96–222 effective, except as oth- erwise provided, as if it had been included in the provi- sions of the Revenue Act of 1978, Pub. L. 95–600, to which such amendment relates, see section 201 of Pub. L. 96–222, set out as a note under section 32 of this title. EFFECTIVE DATE OF 1978 AMENDMENT Pub. L. 95–600, title III, § 365(c), Nov. 6, 1978, 92 Stat. 2855, provided that: ‘‘The amendments made by sub- sections (a) and (b) [amending this section and section 358 of this title] shall apply to transfers occurring on or after the date of the enactment of this Act [Nov. 6, 1978].’’ SAVINGS PROVISION For provisions that nothing in amendment by Pub. L. 101–508 be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to Nov. 5, 1990, for purposes of determining liabil- ity for tax for periods ending after Nov. 5, 1990, see sec- tion 11821(b) of Pub. L. 101–508, set out as a note under section 45K of this title. § 358. Basis to distributees (a) General rule In the case of an exchange to which section 351, 354, 355, 356, or 361 applies— (1) Nonrecognition property The basis of the property permitted to be re- ceived under such section without the recogni- Page 1137 TITLE 26—INTERNAL REVENUE CODE § 358 tion of gain or loss shall be the same as that of the property exchanged— (A) decreased by— (i) the fair market value of any other property (except money) received by the taxpayer, (ii) the amount of any money received by the taxpayer, and (iii) the amount of loss to the taxpayer which was recognized on such exchange, and (B) increased by— (i) the amount which was treated as a dividend, and (ii) the amount of gain to the taxpayer which was recognized on such exchange (not including any portion of such gain which was treated as a dividend). (2) Other property The basis of any other property (except money) received by the taxpayer shall be its fair market value. (b) Allocation of basis (1) In general Under regulations prescribed by the Sec- retary, the basis determined under subsection (a)(1) shall be allocated among the properties permitted to be received without the recogni- tion of gain or loss. (2) Special rule for section 355 In the case of an exchange to which section 355 (or so much of section 356 as relates to sec- tion 355) applies, then in making the alloca- tion under paragraph (1) of this subsection, there shall be taken into account not only the property so permitted to be received without the recognition of gain or loss, but also the stock or securities (if any) of the distributing corporation which are retained, and the allo- cation of basis shall be made among all such properties. (c) Section 355 transactions which are not ex- changes For purposes of this section, a distribution to which section 355 (or so much of section 356 as relates to section 355) applies shall be treated as an exchange, and for such purposes the stock and securities of the distributing corporation which are retained shall be treated as surren- dered, and received back, in the exchange. (d) Assumption of liability (1) In general Where, as part of the consideration to the taxpayer, another party to the exchange as- sumed a liability of the taxpayer, such as- sumption shall, for purposes of this section, be treated as money received by the taxpayer on the exchange. (2) Exception Paragraph (1) shall not apply to the amount of any liability excluded under section 357(c)(3). (e) Exception This section shall not apply to property ac- quired by a corporation by the exchange of its stock or securities (or the stock or securities of a corporation which is in control of the acquir- ing corporation) as consideration in whole or in part for the transfer of the property to it. (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 an- other corporation a party to the reorganization. (g) Adjustments in intragroup transactions in- volving section 355 In the case of a distribution to which section 355 (or so much of section 356 as relates to sec- tion 355) applies and which involves the distribu- tion of stock from 1 member of an affiliated group (as defined in section 1504(a) without re- gard to subsection (b) thereof) to another mem- ber of such group, the Secretary may, notwith- standing any other provision of this section, provide adjustments to the adjusted basis of any stock which— (1) is in a corporation which is a member of such group, and (2) is held by another member of such group, to appropriately reflect the proper treatment of such distribution. (h) Special rules for assumption of liabilities to which subsection (d) does not apply (1) In general If, after application of the other provisions of this section to an exchange or series of ex- changes, the basis of property to which sub- section (a)(1) applies exceeds the fair market value of such property, then such basis shall be reduced (but not below such fair market value) by the amount (determined as of the date of the exchange) of any liability— (A) which is assumed by another person as part of the exchange, and (B) with respect to which subsection (d)(1) does not apply to the assumption. (2) Exceptions Except as provided by the Secretary, para- graph (1) shall not apply to any liability if— (A) the trade or business with which the li- ability is associated is transferred to the person assuming the liability as part of the exchange, or (B) substantially all of the assets with which the liability is associated are trans- ferred to the person assuming the liability as part of the exchange. (3) Liability For purposes of this subsection, the term ‘‘liability’’ shall include any fixed or contin- gent obligation to make payment, without re- gard to whether the obligation is otherwise taken into account for purposes of this title. (Aug. 16, 1954, ch. 736, 68A Stat. 117; Pub. L. 85–866, title I, § 21(a), Sept. 2, 1958, 72 Stat. 1620; Pub. L. 90–621, § 2(a), Oct. 22, 1968, 82 Stat. 1311; Pub. L. 94–253, § 1(b), Mar. 31, 1976, 90 Stat. 296; Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 95–600, title III, Page 1138 TITLE 26—INTERNAL REVENUE CODE § 358 § 365(b), Nov. 6, 1978, 92 Stat. 2855; Pub. L. 100–647, title I, § 1018(d)(5)(B), Nov. 10, 1988, 102 Stat. 3580; Pub. L. 101–508, title XI, § 11801(c)(8)(G), Nov. 5, 1990, 104 Stat. 1388–524; Pub. L. 105–34, title X, § 1012(b)(2), Aug. 5, 1997, 111 Stat. 916; Pub. L. 106–36, title III, § 3001(a)(2), (d)(6), June 25, 1999, 113 Stat. 182, 184; Pub. L. 106–554, § 1(a)(7) [title III, § 309(a)], Dec. 21, 2000, 114 Stat. 2763, 2763A–638; Pub. L. 107–147, title IV, § 412(c), Mar. 9, 2002, 116 Stat. 53.) Editorial Notes AMENDMENTS 2002—Subsec. (h)(1)(A). Pub. L. 107–147 amended sub- par. (A) generally. Prior to amendment, subpar. (A) read as follows: ‘‘which is assumed in exchange for such property, and’’. 2000—Subsec. (h). Pub. L. 106–554 added subsec. (h). 1999—Subsec. (d)(1). Pub. L. 106–36 struck out ‘‘or ac- quired from the taxpayer property subject to a liabil- ity’’ after ‘‘liability of the taxpayer’’ and ‘‘or acquisi- tion (in the amount of the liability)’’ after ‘‘such as- sumption’’. 1997—Subsec. (g). Pub. L. 105–34 added subsec. (g). 1990—Subsec. (a). Pub. L. 101–508, § 11801(c)(8)(G)(i), substituted ‘‘or 361’’ for ‘‘361, 371(b), or 374’’. Subsec. (b)(3). Pub. L. 101–508, § 11801(c)(8)(G)(ii), struck out par. (3) ‘‘Certain exchanges involving Con- Rail’’ which read as follows: ‘‘To the extent provided in regulations prescribed by the Secretary in the case of an exchange to which section 354(d) (or so much of sec- tion 356 as relates to section 354(d)) or section 374(c) ap- plies, for purposes of allocating basis under paragraph (1), stock of the Consolidated Rail Corporation and the certificate of value of the United States Railway Asso- ciation which relates to such stock shall, so long as they are held by the same person, be treated as one property.’’ 1988—Subsec. (f). Pub. L. 100–647 added subsec. (f). 1978—Subsec. (d). Pub. L. 95–600 designated existing provisions as par. (1) and added par. (2). 1976—Subsec. (a). Pub. L. 94–253, § 1(b)(1), substituted ‘‘371(b), or 374’’ for ‘‘or 371(b)’’. Subsec. (b)(1), (3). Pub. L. 94–455 struck out ‘‘or his delegate’’ after ‘‘Secretary’’. Pub. L. 94–253, § 1(b)(2), added par. (3). 1968—Subsec. (e). Pub. L. 90–621 substituted exchange of stock and securities for issuance of stock or securi- ties as the transaction involved and inserted parenthet- ical provisions making reference to stock or securities of a corporation which is in control of the acquiring corporation. 1958—Subsec. (a)(1)(A)(iii). Pub. L. 85–866 added cl. (iii). Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2002 AMENDMENT Amendment by Pub. L. 107–147 effective as if included in the provisions of the Community Renewal Tax Relief Act of 2000 [H.R. 5662, as enacted by Pub. L. 106–554], to which such amendment relates, see section 412(e) of Pub. L. 107–147, set out as a note under section 151 of this title. EFFECTIVE DATE OF 2000 AMENDMENT Pub. L. 106–554, § 1(a)(7) [title III, § 309(d)], Dec. 21, 2000, 114 Stat. 2763, 2763A–638, provided that: ‘‘(1) IN GENERAL.—The amendments made by this sec- tion [amending this section and section 357 of this title] shall apply to assumptions of liability after October 18, 1999. ‘‘(2) RULES.—The rules prescribed under subsection (c) [see Application of Comparable Rules to Partner- ships and S Corporations note below] shall apply to as- sumptions of liability after October 18, 1999, or such later date as may be prescribed in such rules.’’ EFFECTIVE DATE OF 1999 AMENDMENT Amendment by Pub. L. 106–36 applicable to transfers after Oct. 18, 1998, see section 3001(e) of Pub. L. 106–36, set out as a note under section 351 of this title. EFFECTIVE DATE OF 1997 AMENDMENT Amendment by Pub. L. 105–34 applicable, with certain exceptions, to distributions after Apr. 16, 1997, pursuant to a plan (or series of related transactions) which in- volves an acquisition described in section 355(e)(2)(A)(ii) of this title occurring after such date, see section 1012(d) of Pub. L. 105–34, set out as a note under section 351 of this title. EFFECTIVE DATE OF 1988 AMENDMENT Amendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title. EFFECTIVE DATE OF 1978 AMENDMENT Amendment by Pub. L. 95–600 applicable to transfers occurring on or after Nov. 6, 1978, see section 365(c) of Pub. L. 95–600, set out as a note under section 357 of this title. EFFECTIVE DATE OF 1976 AMENDMENT Amendment by Pub. L. 94–253 applicable to taxable years ending after Mar. 31, 1976, see section 2 of Pub. L. 94–253, set out as a note under section 354 of this title. EFFECTIVE DATE OF 1968 AMENDMENT Pub. L. 90–621, § 2(c), Oct. 22, 1968, 82 Stat. 1311, pro- vided that: ‘‘The amendments made by subsections (a) and (b) [amending this section and section 362 of this title] shall apply only in respect of plans of reorganiza- tion adopted after the date of the enactment of this Act [Oct. 22, 1968].’’ EFFECTIVE DATE OF 1958 AMENDMENT Pub. L. 85–866, § 21(b), Sept. 2, 1958, 72 Stat. 1620, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ‘‘The amendment made by sub- section (a) [amending this section] shall apply as pro- vided in section 393 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] as if the clause (iii) added by such amendment had been included in such Code at the time of its enactment [Aug. 16, 1954].’’ SAVINGS PROVISION For provisions that nothing in amendment by Pub. L. 101–508 be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to Nov. 5, 1990, for purposes of determining liabil- ity for tax for periods ending after Nov. 5, 1990, see sec- tion 11821(b) of Pub. L. 101–508, set out as a note under section 45K of this title. ABOLITION OF UNITED STATES RAILWAY ASSOCIATION AND TRANSFER OF FUNCTIONS United States Railway Association abolished effec- tive Apr. 1, 1987, all powers, duties, rights, and obliga- tions of Association relating to Consolidated Rail Cor- poration under Regional Rail Reorganization Act of 1973 (45 U.S.C. 701 et seq.) transferred to Secretary of Transportation on Jan. 1, 1987, and any securities of Corporation held by Association transferred to Sec- retary of Transportation on Oct. 21, 1986, see section 1341 of Title 45, Railroads. APPLICATION OF COMPARABLE RULES TO PARTNERSHIPS AND S CORPORATIONS Pub. L. 106–554, § 1(a)(7) [title III, § 309(c)], Dec. 21, 2000, 114 Stat. 2763, 2763A–638, provided that: ‘‘The Sec- retary of the Treasury or his delegate— Page 1139 TITLE 26—INTERNAL REVENUE CODE § 361 ‘‘(1) shall prescribe rules which provide appropriate adjustments under subchapter K of chapter 1 of the Internal Revenue Code of 1986 to prevent the accel- eration or duplication of losses through the assump- tion of (or transfer of assets subject to) liabilities de- scribed in section 358(h)(3) of such Code (as added by subsection (a)) in transactions involving partner- ships, and ‘‘(2) may prescribe rules which provide appropriate adjustments under subchapter S of chapter 1 of such Code in transactions described in paragraph (1) in- volving S corporations rather than partnerships.’’ SUBPART C—EFFECTS ON CORPORATIONS Sec. 361. Nonrecognition of gain or loss to corpora- tions; treatment of distributions. 362. Basis to corporations. [363. Repealed.] Editorial Notes AMENDMENTS 2018—Pub. L. 115–141, div. U, title IV, § 401(a)(66), Mar. 23, 2018, 132 Stat. 1187, substituted ‘‘Corporations’’ for ‘‘Corporation’’ in subpart heading. 1988—Pub. L. 100–647, title I, § 1018(d)(5)(F), Nov. 10, 1988, 102 Stat. 3580, substituted ‘‘corporations; treat- ment of distributions.’’ for ‘‘transferor corporation; other treatment of transferor corporation; etc.’’ in item 361. 1986—Pub. L. 99–514, title XVIII, § 1804(g)(3), Oct. 22, 1986, 100 Stat. 2806, substituted ‘‘to transferor corpora- tion; other treatment of transferor corporation; etc.’’ for ‘‘corporations’’ in item 361. 1976—Pub. L. 94–455, title XIX, § 1901(b)(13), Oct. 4, 1976, 90 Stat. 1795, struck out item 363 ‘‘Effect on earn- ings and profits’’. § 361. Nonrecognition of gain or loss to corpora- tions; treatment of distributions (a) General rule No gain or loss shall be recognized to a cor- poration if such corporation is a party to a reor- ganization and exchanges property, in pursuance of the plan of reorganization, solely for stock or securities in another corporation a party to the reorganization. (b) Exchanges not solely in kind (1) Gain If subsection (a) would apply to an exchange but for the fact that the property received in exchange consists not only of stock or securi- ties permitted by subsection (a) to be received without the recognition of gain, but also of other property or money, then— (A) Property distributed If the corporation receiving such other property or money distributes it in pursu- ance of the plan of reorganization, no gain to the corporation shall be recognized from the exchange, but (B) Property not distributed If the corporation receiving such other property or money does not distribute it in pursuance of the plan of reorganization, the gain, if any, to the corporation shall be rec- ognized. The amount of gain recognized under subpara- graph (B) shall not exceed the sum of the money and the fair market value of the other property so received which is not so distrib- uted. (2) Loss If subsection (a) would apply to an exchange but for the fact that the property received in exchange consists not only of property per- mitted by subsection (a) to be received with- out the recognition of gain or loss, but also of other property or money, then no loss from the exchange shall be recognized. (3) Treatment of transfers to creditors For purposes of paragraph (1), any transfer of the other property or money received in the exchange by the corporation to its creditors in connection with the reorganization shall be treated as a distribution in pursuance of the plan of reorganization. The Secretary may prescribe such regulations as may be nec- essary to prevent avoidance of tax through abuse of the preceding sentence or subsection (c)(3). In the case of a reorganization described in section 368(a)(1)(D) with respect to which stock or securities of the corporation to which the assets are transferred are distributed in a transaction which qualifies under section 355, this paragraph shall apply only to the extent that the sum of the money and the fair market value of other property transferred to such creditors does not exceed the adjusted bases of such assets transferred (reduced by the amount of the liabilities assumed (within the meaning of section 357(c))). (c) Treatment of distributions (1) In general Except as provided in paragraph (2), no gain or loss shall be recognized to a corporation a party to a reorganization on the distribution to its shareholders of property in pursuance of the plan of reorganization. (2) Distributions of appreciated property (A) In general If— (i) in a distribution referred to in para- graph (1), the corporation distributes prop- erty other than qualified property, and (ii) the fair market value of such prop- erty exceeds its adjusted basis (in the hands of the distributing corporation), then gain shall be recognized to the distrib- uting corporation as if such property were sold to the distributee at its fair market value. (B) Qualified property For purposes of this subsection, the term ‘‘qualified property’’ means— (i) any stock in (or right to acquire stock in) the distributing corporation or obliga- tion of the distributing corporation, or (ii) any stock in (or right to acquire stock in) another corporation which is a party to the reorganization or 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 distributed in the distribu- tion referred to in paragraph (1) is subject to