Title 26 — Internal Revenue Code
Part III · Chapter 1 — Normal Taxes and Surtaxes
§ 358. Basis to distributees
Statutory text
General rule
In the case of an exchange to which section 351, 354, 355, 356, or 361 applies—
Nonrecognition property
The basis of the property permitted to be received under such section without the recognition of gain or loss shall be the same as that of the property exchanged—
decreased by—
the fair market value of any other property (except money) received by the taxpayer,
the amount of any money received by the taxpayer, and
the amount of loss to the taxpayer which was recognized on such exchange, and
increased by—
the amount which was treated as a dividend, and
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).
Other property
The basis of any other property (except money) received by the taxpayer shall be its fair market value.
Allocation of basis
In general
Under regulations prescribed by the Secretary, the basis determined under subsection (a)(1) shall be allocated among the properties permitted to be received without the recognition of gain or loss.
Special rule for section 355
In the case of an exchange to which section 355 (or so much of section 356 as relates to section 355) applies, then in making the allocation 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 allocation of basis shall be made among all such properties.
Section 355 transactions which are not exchanges
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 surrendered, and received back, in the exchange.
Assumption of liability
In general
Where, as part of the consideration to the taxpayer, another party to the exchange assumed a liability of the taxpayer, such assumption shall, for purposes of this section, be treated as money received by the taxpayer on the exchange.
Exception
Paragraph (1) shall not apply to the amount of any liability excluded under section 357(c)(3).
Exception
This section shall not apply to property acquired 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 acquiring corporation) as consideration in whole or in part for the transfer of the property to it.
Definition of nonrecognition property in case of section 361 exchange
For purposes of this section, the property permitted 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.
Adjustments in intragroup transactions involving section 355
In the case of a distribution to which section 355 (or so much of section 356 as relates to section 355) applies and which involves the distribution of stock from 1 member of an affiliated group (as defined in section 1504(a) without regard to subsection (b) thereof) to another member of such group, the Secretary may, notwithstanding any other provision of this section, provide adjustments to the adjusted basis of any stock which—
is in a corporation which is a member of such group, and
is held by another member of such group,
to appropriately reflect the proper treatment of such distribution.
Special rules for assumption of liabilities to which subsection (d) does not apply
In general
If, after application of the other provisions of this section to an exchange or series of exchanges, the basis of property to which subsection (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—
which is assumed by another person as part of the exchange, and
with respect to which subsection (d)(1) does not apply to the assumption.
Exceptions
Except as provided by the Secretary, paragraph (1) shall not apply to any liability if—
the trade or business with which the liability is associated is transferred to the person assuming the liability as part of the exchange, or
substantially all of the assets with which the liability is associated are transferred to the person assuming the liability as part of the exchange.
Liability
For purposes of this subsection, the term “liability” shall include any fixed or contingent obligation to make payment, without regard to whether the obligation is otherwise taken into account for purposes of this title.
Legislative history
Reconstructed from this section’s Code source credit and amendment notes, resolved against the local Statutes at Large. Editorial notes are evidence, not the law that made the change.
Aug. 16, 1954, ch. 736, 68A Stat. 117 · 68A Stat. 117
Enacted · 26 U.S.C. § 358
Aug. 16, 1954, ch. 736, 68A Stat. 117
Source evidence
Code source credit
Aug. 16, 1954, ch. 736, 68A Stat. 117Technical Amendments Act of 1958
Pub. L. 85–866 title I § 21(a) · 72 Stat. 1606
Added · 26 U.S.C. § 358(a)(1)(A)(iii)
Pub. L. 85–866 added cl. (iii)
Source evidence
Code amendment note
Subsec. (a)(1)(A)(iii). Pub. L. 85–866 added cl. (iii).Enacted provision · exact public law section
(a) Basis.— Section 358 (a) (1) (A) (relating to decrease in basis to distributees of property received in certain corporate organizations and reorganizations) is amended by striking out “and” at the end of the clause (i), and by adding after clause (ii) the following new clause: “(iii) the amount of loss to the taxpayer which was recognized on such exchange, and”.Pub. L. 90–621 § 2(a) · 82 Stat. 1310
Substituted · 26 U.S.C. § 358(e)
Pub. L. 90–621 substituted exchange of stock and securities for issuance of stock or securities as the transaction involved
Inserted · 26 U.S.C. § 358(e)
Pub. L. 90–621 inserted parenthetical provisions making reference to stock or securities of a corporation which is in control of the acquiring corporation
Source evidence
Code amendment note
Subsec. (e). Pub. L. 90–621 substituted exchange of stock and securities for issuance of stock or securities as the transaction involved and inserted parenthetical provisions making reference to stock or securities of a corporation which is in control of the acquiring corporation.Enacted provision · exact public law section
(a) Section 358(e) of the Internal Revenue Code of 1954 68A Stat. 118. (relating to the exception to the rule for determining basis to distributees in corporate reorganizations) is amended to read as follows: “(e) Exception.— This section shall not apply to property acquired 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 acquiring corporation) as consideration in whole or in part for the transfer of the property to it.”Pub. L. 94–253 § 1(b)(1) · 90 Stat. 295
Substituted · 26 U.S.C. § 358(a)
Pub. L. 94–253, § 1(b)(1), substituted “371(b), or 374” for “or 371(b)”
Source evidence
Code amendment note
Subsec. (a). Pub. L. 94–253, § 1(b)(1), substituted “371(b), or 374” for “or 371(b)”.Enacted provision · exact public law section
(1) Basis of property received by transferor railroad corporations.— Section 358(a) of such Code (relating to basis to distributes) is amended by striking out “or 371 (b) ” and inserting in lieu thereof “371(b), or 374”.Pub. L. 94–253 § 1(b)(2) · 90 Stat. 295
Added · 26 U.S.C. § 358(b)(1); 26 U.S.C. § 358(b)(3)
Pub. L. 94–253, § 1(b)(2), added par. (3)
Target inherited from the preceding amendment note.
Source evidence
Code amendment note
Pub. L. 94–253, § 1(b)(2), added par. (3).Enacted provision · exact public law section
(2) Allocation of basis.— Subsection (b) of sec t ion 358 of such Code (relating to allocation of basis) is amended by adding at the end thereof the following new paragraph: “(3) Certain exchanges involving conrail.— To the extent provided in regulations prescribed by the Secretary or his delegate, in the case of an exchange to which section 354(d)(or so much of section 356 as relates to section 354(d)) or section 374(c) applies, for purposes of allocating basis under paragraph (1), Stock of the Consolidated Rail Corporation and the certificate of value of the United States Railway Association which relates to such stock shall, so long as they are held by the same person, be treated as one property.”Pub. L. 94–455 title XIX § 1906(b)(13)(A) · 90 Stat. 1520
Struck · 26 U.S.C. § 358(b)(1); 26 U.S.C. § 358(b)(3)
Pub. L. 94–455 struck out “or his delegate” after “Secretary”
Source evidence
Code amendment note
Subsec. (b)(1), (3). Pub. L. 94–455 struck out “or his delegate” after “Secretary”.Enacted provision · exact public law section
(A) The Internal Revenue Code of 1954, as amended by this Act, is amended by striking out “Secretary or his delegate” each place it appears and inserting in lieu thereof “Secretary”.Pub. L. 95–600 title III § 365(b) · 92 Stat. 2763
Amended · 26 U.S.C. § 358(d)
Pub. L. 95–600 designated existing provisions as par. (1)
Added · 26 U.S.C. § 358(d)
Pub. L. 95–600 added par. (2)
Source evidence
Code amendment note
Subsec. (d). Pub. L. 95–600 designated existing provisions as par. (1) and added par. (2).Enacted provision · exact public law section
(b) Basis of Distributees.— Subsection (d) of section 358 (relating to 26 USC 358. basis to distributees) is amended to read as follows: “(d) Assumption of liability.— “(1) In general.— Where, as part of the consideration to the taxpayer, another party to the exchange assumed a liability of the taxpayer or acquired from the taxpayer property subject to a liability, such assumption or acquisition (in the amount of the liability) 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).” 26 USC 357. 26 USC 357 note.Technical and Miscellaneous Revenue Act of 1988
Pub. L. 100–647 title I § 1018(d)(5)(B) · 102 Stat. 3342
Added · 26 U.S.C. § 358(f)
Pub. L. 100–647 added subsec. (f)
Source evidence
Code amendment note
Subsec. (f). Pub. L. 100–647 added subsec. (f).Enacted provision · exact public law section
(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 permitted 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.”Revenue Reconciliation Act of 1990
Pub. L. 101–508 § 11801(c)(8)(G)(i) · 104 Stat. 1388
Substituted · 26 U.S.C. § 358(a)
Pub. L. 101–508, § 11801(c)(8)(G)(i), substituted “or 361” for “361, 371(b), or 374”
Source evidence
Code amendment note
Subsec. (a). Pub. L. 101–508, § 11801(c)(8)(G)(i), substituted “or 361” for “361, 371(b), or 374”.Enacted provision · exact public law section
(i) in subsection (a), by striking “361, 371(b), or 374” and inserting “or 361”, andRevenue Reconciliation Act of 1990
Pub. L. 101–508 § 11801(c)(8)(G)(ii) · 104 Stat. 1388
Struck · 26 U.S.C. § 358(b)(3)
Pub. L. 101–508, § 11801(c)(8)(G)(ii), struck out par. (3) “Certain exchanges involving ConRail” 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 section 356 as relates to section 354(d)) or section 374(c) applies, for purposes of allocating basis under paragraph (1), stock of the Consolidated Rail Corporation and the certificate of value of the United States Railway Association which relates to such stock shall, so long as they are held by the same person, be treated as one property.”
Source evidence
Code amendment note
Subsec. (b)(3). Pub. L. 101–508, § 11801(c)(8)(G)(ii), struck out par. (3) “Certain exchanges involving ConRail” 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 section 356 as relates to section 354(d)) or section 374(c) applies, for purposes of allocating basis under paragraph (1), stock of the Consolidated Rail Corporation and the certificate of value of the United States Railway Association which relates to such stock shall, so long as they are held by the same person, be treated as one property.”Enacted provision · exact public law section
(ii) by striking subsection (b)(3).Pub. L. 105–34 title X § 1012(b)(2) · 111 Stat. 788
Added · 26 U.S.C. § 358(g)
Pub. L. 105–34 added subsec. (g)
Source evidence
Code amendment note
Subsec. (g). Pub. L. 105–34 added subsec. (g).Enacted provision · exact public law section
(2) Adjustments to basis.— Section 358 (relating to basis to distributees) is amended by adding at the end the following new subsection: “(g) Adjustments in Intragroup Transactions Involving Section 355.— In the case of a distribution to which section 355 (or so much of section 356 as relates to section 355) applies and which involves the distribution of stock from 1 member of an affiliated group (as defined in section 1504(a) without regard to subsection (b) thereof) to another member of such group, the Secretary may, notwithstanding 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.”.Miscellaneous Trade and Technical Corrections Act of 1999
Pub. L. 106–36 title III § 3001(a)(2) · 113 Stat. 127
Struck · 26 U.S.C. § 358(d)(1)
Pub. L. 106–36 struck out “or acquired from the taxpayer property subject to a liability” after “liability of the taxpayer” and “or acquisition (in the amount of the liability)” after “such assumption”
Source evidence
Code amendment note
Subsec. (d)(1). Pub. L. 106–36 struck out “or acquired from the taxpayer property subject to a liability” after “liability of the taxpayer” and “or acquisition (in the amount of the liability)” after “such assumption”.Enacted provision · exact public law section
(2) Section 358.— Section 358(d)(1) of such Code (relating 26 USC 358. to assumption of liability) is amended by striking “or acquired from the taxpayer property subject to a liability”.Consolidated Appropriations Act, 2001
Pub. L. 106–554 § 1(a)(7)(tIII)(s309)(a) · 114 Stat. 2763
Added · 26 U.S.C. § 358(h)
Pub. L. 106–554 added subsec. (h)
Source evidence
Code amendment note
Subsec. (h). Pub. L. 106–554 added subsec. (h).Enacted provision · exact public law section
(7) H.R. 5662, as introduced on December 14, 2000.Effective date note
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.Job Creation and Worker Assistance Act of 2002
Pub. L. 107–147 title IV § 412(c) · 116 Stat. 21
Amended · 26 U.S.C. § 358(h)(1)(A)
Pub. L. 107–147 amended subpar. (A) generally. Prior to amendment, subpar. (A) read as follows: “which is assumed in exchange for such property, and”
Source evidence
Code amendment note
Subsec. (h)(1)(A). Pub. L. 107–147 amended subpar. (A) generally. Prior to amendment, subpar. (A) read as follows: “which is assumed in exchange for such property, and”.Enacted provision · exact public law section
(c) Amendment Related to Section 309 of the Act.— Subparagraph (A) of section 358(h)(1) is amended to read as follows: “(A) which is assumed by another person as part of the exchange, and”.Effective date note
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.
15 of 16 references resolved to an enrolled provision · 1 partial
Editorial Notes
Amendments1958–2002 · 10 rounds
2002
Subsec. (h)(1)(A). Pub. L. 107–147 amended subpar. (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 acquired from the taxpayer property subject to a liability” after “liability of the taxpayer” and “or acquisition (in the amount of the liability)” after “such assumption”.
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 ConRail” 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 section 356 as relates to section 354(d)) or section 374(c) applies, for purposes of allocating basis under paragraph (1), stock of the Consolidated Rail Corporation and the certificate of value of the United States Railway Association 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 securities as the transaction involved and inserted parenthetical 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)], , 114 Stat. 2763, 2763A–638, provided that:
“(1) In general.—
The amendments made by this section [amending this section and section 357 of this title] shall apply to assumptions of liability after .
“(2) Rules.—
The rules prescribed under subsection (c) [see Application of Comparable Rules to Partnerships and S Corporations note below] shall apply to assumptions of liability after , 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 , 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 , pursuant to a plan (or series of related transactions) which involves 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 , 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 , 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), , 82 Stat. 1311, provided 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 reorganization adopted after the date of the enactment of this Act [].”
Effective Date of 1958 Amendment
Pub. L. 85–866, § 21(b), , 72 Stat. 1620, as amended by Pub. L. 99–514, § 2, , 100 Stat. 2095, provided that: “The amendment made by subsection (a) [amending this section] shall apply as provided 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 [].”
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 , for purposes of determining liability for tax for periods ending after , see section 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 effective , all powers, duties, rights, and obligations of Association relating to Consolidated Rail Corporation under Regional Rail Reorganization Act of 1973 (45 U.S.C. 701 et seq.) transferred to Secretary of Transportation on , and any securities of Corporation held by Association transferred to Secretary of Transportation on , 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)], , 114 Stat. 2763, 2763A–638, provided that:
“The Secretary of the Treasury or his delegate—
“(1) shall prescribe rules which provide appropriate adjustments under subchapter K of chapter 1 of the Internal Revenue Code of 1986 to prevent the acceleration or duplication of losses through the assumption of (or transfer of assets subject to) liabilities described in section 358(h)(3) of such Code (as added by subsection (a)) in transactions involving partnerships, and
“(2) may prescribe rules which provide appropriate adjustments under subchapter S of chapter 1 of such Code in transactions described in paragraph (1) involving S corporations rather than partnerships.”
Credits
1954–2002 · 12 acts
- 1954Aug. 16, 1954, ch. 736, 68A Stat. 117
- 1958Pub. L. 85–866, title I, § 21(a), , 72 Stat. 1620
- 1968Pub. L. 90–621, § 2(a), , 82 Stat. 1311
- 1976Pub. L. 94–253, § 1(b), , 90 Stat. 296
- 1976Pub. L. 94–455, title XIX, § 1906(b)(13)(A), , 90 Stat. 1834
- 1978Pub. L. 95–600, title III, § 365(b), , 92 Stat. 2855
- 1988Pub. L. 100–647, title I, § 1018(d)(5)(B), , 102 Stat. 3580
- 1990Pub. L. 101–508, title XI, § 11801(c)(8)(G), , 104 Stat. 1388–524
- 1997Pub. L. 105–34, title X, § 1012(b)(2), , 111 Stat. 916
- 1999Pub. L. 106–36, title III, § 3001(a)(2), (d)(6), , 113 Stat. 182, 184
- 2000Pub. L. 106–554, § 1(a)(7) [title III, § 309(a)], , 114 Stat. 2763, 2763A–638
- 2002Pub. L. 107–147, title IV, § 412(c), , 116 Stat. 53.
Show as published
(Aug. 16, 1954, ch. 736, 68A Stat. 117; Pub. L. 85–866, title I, § 21(a), , 72 Stat. 1620; Pub. L. 90–621, § 2(a), , 82 Stat. 1311; Pub. L. 94–253, § 1(b), , 90 Stat. 296; Pub. L. 94–455, title XIX, § 1906(b)(13)(A), , 90 Stat. 1834; Pub. L. 95–600, title III, § 365(b), , 92 Stat. 2855; Pub. L. 100–647, title I, § 1018(d)(5)(B), , 102 Stat. 3580; Pub. L. 101–508, title XI, § 11801(c)(8)(G), , 104 Stat. 1388–524; Pub. L. 105–34, title X, § 1012(b)(2), , 111 Stat. 916; Pub. L. 106–36, title III, § 3001(a)(2), (d)(6), , 113 Stat. 182, 184; Pub. L. 106–554, § 1(a)(7) [title III, § 309(a)], , 114 Stat. 2763, 2763A–638; Pub. L. 107–147, title IV, § 412(c), , 116 Stat. 53.)