26 U.S.C. § 358

Basis to distributees

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(a) General ruleIn the case of an exchange to which section 351, 354, 355, 356, or 361 applies—(1) Nonrecognition propertyThe 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—(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 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.

(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 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.

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.

(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, such assumption 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 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.

(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.

(g) Adjustments in intragroup transactions involving section 355In 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.(h) Special rules for assumption of liabilities to which subsection (d) does not apply(1) In generalIf, 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—(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) ExceptionsExcept as provided by the Secretary, paragraph (1) shall not apply to any liability if—(A) the trade or business with which the liability 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 transferred 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 contingent obligation to make payment, without regard 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, § 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 NotesAmendments

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 SubsidiariesEffective 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 section [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 Partnerships and S Corporations note below] shall apply to assumptions 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 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 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, 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 [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 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 [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 liability for tax for periods ending after Nov. 5, 1990, 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 Apr. 1, 1987, 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 Jan. 1, 1987, and any securities of Corporation held by Association transferred to Secretary 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 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.”

Notes of Decisions

Cited in 13 cases, 1975–2015 · leading case: Coltec Indus., Inc. v. United States, 454 F.3d 1340 (Fed. Cir. 2006).

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Coltec Indus., Inc. v. United States, 454 F.3d 1340 (Fed. Cir. 2006). · cites it 5× “26 U.S.C. § 358 (a)(1) (1996). However, a transaction under § 351 can become more complicated if, for example, in addition to receiving stock, “money” is also received from a controlled corporation.”

The Black & Decker Corp. v. United States, 436 F.3d 431 (4th Cir. 2006). · cites it 3× “” 26 U.S.C. § 358 (a)(1). Section 358(d)(1) further provides that, in § 358 analysis, an assumption of liability by the transferee shall be treated as “money received” by the transferor.”

Sala v. United States, 552 F. Supp. 2d 1167 (D. Colo. 2008). · cites it 13× “See 26 U.S.C. § 358 . Accordingly, no gain or loss is realized in such an exchange.”

Coltec Indus., Inc. v. United States, 62 Fed. Cl. 716 (Fed. Cl. 2004). · cites it 8× “17 If a liability is excluded under Section 357(c)(3)(A)(i), it also is excluded from 26 U.S.C. § 358 (d)(1). 3. 26 U.S.C. Section 358 (a)(1) Determines Basis In A Section 351 Exchange.”

Clearmeadow Investments, LLC v. United States, 87 Fed. Cl. 509 (Fed. Cl. 2009). · cites it 2× “26 U.S.C. § 358 (h)(3). Under section 309(d)(2) of the 2000 Renewal Act, the regulations are to apply to assumptions of liability that occur after October 18, 1999, or such later date as may be prescribed.”

WFC Holdings Corp. v. United States, 728 F.3d 736 (8th Cir. 2013). · cites it 4× “Furthermore, 26 U.S.C. § 358 (a)(1) provides that, as a general rule, a taxpayer’s tax basis in the stock it receives through a § 351 tax-free transfer must be equal to the tax basis of the property transferred into the corporation.”

Long Term Capital Holdings v. United States, 330 F. Supp. 2d 122 (D. Conn. 2004). “eived from OTC (Quest and Rorer combined received approximately $100 million in prepayments in CHIPS IVA, CHIPS IVB, and TRIPS I), and OTC, although receiving in exchange preferred stock only valued at a small fraction of the prepayments it exchanged (approximately $1 million…”

Eldon S. Chapman v. Comm'r of Internal Revenue, 618 F.2d 856 (1st Cir. 1980). “See footnote 1 for text of Section 368(a)(1).”

Jacquelynn Dorrance v. United States, 809 F.3d 479 (9th Cir. 2015). “See 26 U.S.C. § 358 (a)(1). In this case, the IRS, citing its own interpretations, opined that the basis should be zero.”

Wilford E. Thatcher v. Comm'r of Internal Revenue, 533 F.2d 1114 (9th Cir. 1976). “Also because the liabilities assumed by the corporation substantially exceeded the partners’ basis in the assets transferred to the corporation, the Commissioner took the position that the shares of stock received by the taxpayers in the exchange had a basis of zero under 26…”

Int'l Tel. & Tel. Corp. v. Alexander, 396 F. Supp. 1150 (D. Del. 1975). “Specifically, this provision and a concomitant section of the code, 26 U.S.C. § 358 , permit exchanging shareholders in a reorganization (as defined in Section 368) to substitute the basis of property exchanged for that of the property received, thereby deferring realization of…”

WFC Holdings Corp. v. United States (8th Cir. 2013). · cites it 3× “Furthermore, 26 U.S.C. § 358 (a)(1) provides that, as a general rule, a taxpayer's tax basis in the stock it receives through a § 351 tax-free transfer must be equal to the tax basis of the property transferred into the corporation.”

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