Title 26 — Internal Revenue Code
Part III · Chapter 1 — Normal Taxes and Surtaxes
§ 961. Adjustments to basis of stock in controlled foreign corporations and of other property
Statutory text
Increase in basis
Under regulations prescribed by the Secretary, the basis of a United States shareholder’s stock in a controlled foreign corporation, and the basis of property of a United States shareholder by reason of which he is considered under section 958(a)(2) as owning stock of a controlled foreign corporation, shall be increased by the amount required to be included in his gross income under section 951(a) with respect to such stock or with respect to such property, as the case may be, but only to the extent to which such amount was included in the gross income of such United States shareholder. In the case of a United States shareholder who has made an election under section 962 for the taxable year, the increase in basis provided by this subsection shall not exceed an amount equal to the amount of tax paid under this chapter with respect to the amounts required to be included in his gross income under section 951(a).
Reduction in basis
In general
Under regulations prescribed by the Secretary, the adjusted basis of stock or other property with respect to which a United States shareholder or a United States person receives an amount which is excluded from gross income under section 959(a) shall be reduced by the amount so excluded. In the case of a United States shareholder who has made an election under section 962 for any prior taxable year, the reduction in basis provided by this paragraph shall not exceed an amount equal to the amount received which is excluded from gross income under section 959(a) after the application of section 962(d).
Amount in excess of basis
To the extent that an amount excluded from gross income under section 959(a) exceeds the adjusted basis of the stock or other property with respect to which it is received, the amount shall be treated as gain from the sale or exchange of property.
Basis adjustments in stock held by foreign corporations
Under regulations prescribed by the Secretary, if a United States shareholder is treated under section 958(a)(2) as owning stock in a controlled foreign corporation which is owned by another controlled foreign corporation, then adjustments similar to the adjustments provided by subsections (a) and (b) shall be made to—
the basis of such stock, and
the basis of stock in any other controlled foreign corporation by reason of which the United States shareholder is considered under section 958(a)(2) as owning the stock described in paragraph (1),
but only for the purposes of determining the amount included under section 951 in the gross income of such United States shareholder (or any other United States shareholder who acquires from any person any portion of the interest of such United States shareholder by reason of which such shareholder was treated as owning such stock, but only to the extent of such portion, and subject to such proof of identity of such interest as the Secretary may prescribe by regulations). The preceding sentence shall not apply with respect to any stock to which a basis adjustment applies under subsection (a) or (b).
Basis in specified 10-percent owned foreign corporation reduced by nontaxed portion of dividend for purposes of determining loss
If a domestic corporation received a dividend from a specified 10-percent owned foreign corporation (as defined in section 245A) in any taxable year, solely for purposes of determining loss on any disposition of stock of such foreign corporation in such taxable year or any subsequent taxable year, the basis of such domestic corporation in such stock shall be reduced (but not below zero) by the amount of any deduction allowable to such domestic corporation under section 245A with respect to such stock except to the extent such basis was reduced under section 1059 by reason of a dividend for which such a deduction was allowable.
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.
Revenue Act of 1962
Pub. L. 87–834 § 12(a) · 76 Stat. 960
Enacted · 26 U.S.C. § 961
Added Pub. L. 87–834, § 12(a), Oct. 16, 1962, 76 Stat. 1022
Source evidence
Code source credit
Added Pub. L. 87–834, § 12(a), Oct. 16, 1962, 76 Stat. 1022Pub. L. 94–455 title XIX § 1906(b)(13)(A) · 90 Stat. 1520
Struck · 26 U.S.C. § 961(a); 26 U.S.C. § 961(b)(1)
Pub. L. 94–455 struck out “or his delegate” after “Secretary”
Source evidence
Code amendment note
Subsecs. (a), (b)(1). 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. 105–34 title XI § 1112(b)(1) · 111 Stat. 788
Added · 26 U.S.C. § 961(c)
Pub. L. 105–34 added subsec. (c)
Source evidence
Code amendment note
Subsec. (c). Pub. L. 105–34 added subsec. (c).Enacted provision · exact public law section
(1) In general.— Section 961 (relating to adjustments to basis of stock in controlled foreign corporations and of other property) is amended by adding at the end thereof the following new subsection: “(c) Basis Adjustments in Stock Held by Foreign Corporation.— Regulations. Under regulations prescribed by the Secretary, if a United States shareholder is treated under section 958(a)(2) as owning any stock in a controlled foreign corporation which is actually owned by another controlled foreign corporation, adjustments similar to the adjustments provided by subsections (a) and (b) shall be made to the basis of such stock in the hands of such other controlled foreign corporation, but only for the purposes of determining the amount included under section 951 in the gross income of such United States shareholder (or any other United States shareholder who acquires from any person any portion of the interest of such United States shareholder by reason of which such shareholder was treated as owning such stock, but only to the extent of such portion, and subject to such proof of identity of such interest as the Secretary may prescribe by regulations).”.Tax Technical Corrections Act of 2005
Pub. L. 109–135 title IV § 409(b) · 119 Stat. 2577
Amended · 26 U.S.C. § 961(c)
Pub. L. 109–135 amended heading and text of subsec. (c) generally. Prior to amendment, text read as follows: “Under regulations prescribed by the Secretary, if a United States shareholder is treated under section 958(a)(2) as owning any stock in a controlled foreign corporation which is actually owned by another controlled foreign corporation, adjustments similar to the adjustments provided by subsections (a) and (b) shall be made to the basis of such stock in the hands of such other controlled foreign corporation, but only for the purposes of determining the amount included under section 951 in the gross income of such United States shareholder (or any other United States shareholder who acquires from any person any portion of the interest of such United States shareholder by reason of which such shareholder was treated as owning such stock, but only to the extent of such portion, and subject to such proof of identity of such interest as the Secretary may prescribe by regulations).”
Source evidence
Code amendment note
Subsec. (c). Pub. L. 109–135 amended heading and text of subsec. (c) generally. Prior to amendment, text read as follows: “Under regulations prescribed by the Secretary, if a United States shareholder is treated under section 958(a)(2) as owning any stock in a controlled foreign corporation which is actually owned by another controlled foreign corporation, adjustments similar to the adjustments provided by subsections (a) and (b) shall be made to the basis of such stock in the hands of such other controlled foreign corporation, but only for the purposes of determining the amount included under section 951 in the gross income of such United States shareholder (or any other United States shareholder who acquires from any person any portion of the interest of such United States shareholder by reason of which such shareholder was treated as owning such stock, but only to the extent of such portion, and subject to such proof of identity of such interest as the Secretary may prescribe by regulations).”Enacted provision · exact public law section
(b) Amendment Related to Section 1112 of the Act.— Subsection (c) of section 961 is amended to read as follows: “(c) Basis Adjustments in Stock Held by Foreign Corporations.— Under regulations prescribed by the Secretary, if a United States shareholder is treated under section 958(a)(2) as owning stock in a controlled foreign corporation which is owned by another controlled foreign corporation, then adjustments similar to the adjustments provided by subsections (a) and (b) shall be made to— “(1) the basis of such stock, and “(2) the basis of stock in any other controlled foreign corporation by reason of which the United States shareholder is considered under section 958(a)(2) as owning the stock described in paragraph (1), but only for the purposes of determining the amount included under section 951 in the gross income of such United States shareholder (or any other United States shareholder who acquires from any person any portion of the interest of such United States shareholder by reason of which such shareholder was treated as owning such stock, but only to the extent of such portion, and subject to such proof of identity of such interest as the Secretary may prescribe by regulations). The preceding sentence shall not apply with respect to any stock to which a basis adjustment applies under subsection (a) or (b).” .Pub. L. 115–97 title I § 14102(b)(1) · 131 Stat. 2054
Added · 26 U.S.C. § 961(d)
Pub. L. 115–97 added subsec. (d)
Source evidence
Code amendment note
Subsec. (d). Pub. L. 115–97 added subsec. (d).Enacted provision · exact public law section
(1) In general.— Section 961 is amended by adding at the end the following new subsection: “(d) Basis in Specified 10-percent Owned Foreign Corporation Reduced by Nontaxed Portion of Dividend for Purposes of Determining Loss.— If a domestic corporation received a dividend from a specified 10-percent owned foreign corporation (as defined in section 245A) in any taxable year, solely for purposes of determining loss on any disposition of stock of such foreign corporation in such taxable year or any subsequent taxable year, the basis of such domestic corporation in such stock shall be reduced (but not below zero) by the amount of any deduction allowable to such domestic corporation under section 245A with respect to such stock except to the extent such basis was reduced under section 1059 by reason of a dividend for which such a deduction was allowable.” .Effective date note
Pub. L. 115–97, title I, § 14102(b)(2), Dec. 22, 2017, 131 Stat. 2192, provided that: “The amendments made by this subsection [amending this section] shall apply to distributions made after December 31, 2017.”
4 of 5 references resolved to an enrolled provision · 1 partial
Editorial Notes
Amendments1976–2017 · 4 rounds
2017
Subsec. (d). Pub. L. 115–97 added subsec. (d).
2005
Subsec. (c). Pub. L. 109–135 amended heading and text of subsec. (c) generally. Prior to amendment, text read as follows: “Under regulations prescribed by the Secretary, if a United States shareholder is treated under section 958(a)(2) as owning any stock in a controlled foreign corporation which is actually owned by another controlled foreign corporation, adjustments similar to the adjustments provided by subsections (a) and (b) shall be made to the basis of such stock in the hands of such other controlled foreign corporation, but only for the purposes of determining the amount included under section 951 in the gross income of such United States shareholder (or any other United States shareholder who acquires from any person any portion of the interest of such United States shareholder by reason of which such shareholder was treated as owning such stock, but only to the extent of such portion, and subject to such proof of identity of such interest as the Secretary may prescribe by regulations).”
1997
Subsec. (c). Pub. L. 105–34 added subsec. (c).
1976
Subsecs. (a), (b)(1). Pub. L. 94–455 struck out “or his delegate” after “Secretary”.
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Pub. L. 115–97, title I, § 14102(b)(2), , 131 Stat. 2192, provided that: “The amendments made by this subsection [amending this section] shall apply to distributions made after .”
Effective Date of 2005 Amendment
Pub. L. 109–135, title IV, § 409(d), , 119 Stat. 2636, provided that: “The amendments made by this section [amending this section and sections 6038B, 6411, and 6601 of this title] shall take effect as if included in the provisions of the Taxpayer Relief Act of 1997 [Pub. L. 105–34] to which they relate.”
Effective Date of 1997 Amendment
Pub. L. 105–34, title XI, § 1112(b)(2), , 111 Stat. 969, provided that: “The amendment made by paragraph (1) [amending this section] shall apply for purposes of determining inclusions for taxable years of United States shareholders beginning after .”
Dual Resident Companies
Basis adjustments of this section not applicable in certain circumstances involving dual resident companies, see section 6126 of Pub. L. 100–647, set out as a note under section 1502 of this title.
Credits
1962–2017 · 5 acts
- 1962Added Pub. L. 87–834, § 12(a), , 76 Stat. 1022
- 1976amended Pub. L. 94–455, title XIX, § 1906(b)(13)(A), , 90 Stat. 1834
- 1997Pub. L. 105–34, title XI, § 1112(b)(1), , 111 Stat. 969
- 2005Pub. L. 109–135, title IV, § 409(b), , 119 Stat. 2635
- 2017Pub. L. 115–97, title I, § 14102(b)(1), , 131 Stat. 2192.
Show as published
(Added Pub. L. 87–834, § 12(a), , 76 Stat. 1022; amended Pub. L. 94–455, title XIX, § 1906(b)(13)(A), , 90 Stat. 1834; Pub. L. 105–34, title XI, § 1112(b)(1), , 111 Stat. 969; Pub. L. 109–135, title IV, § 409(b), , 119 Stat. 2635; Pub. L. 115–97, title I, § 14102(b)(1), , 131 Stat. 2192.)