§307 — Title 26 Internal Revenue Code | U.S. Code

§307 Basis of stock and stock rights acquired in distributions

Title 26 › Subtitle Subtitle A— - Income Taxes › Chapter CHAPTER 1— - NORMAL TAXES AND SURTAXES › Subchapter Subchapter C— - Corporate Distributions and Adjustments › Part PART I— - DISTRIBUTIONS BY CORPORATIONS › Subpart Subpart A— - Effects on Recipients › § 307

Last updated Apr 6, 2026|Official source

Summary

When a company gives a shareholder extra shares or rights to buy shares in a kind of distribution covered by section 305(a), the shareholder must split the original stock’s tax cost between the old shares and the new shares. How to divide that cost is set by rules the IRS/Treasury will write. If the company gives only rights to buy stock and those rights are worth less than 15% of the old stock at the time, the shareholder can make a special election about tax treatment. That election must be on the tax return for the year the rights were received, follow IRS rules, and cannot be changed. For distributions before June 22, 1954, see section 1052.

Title 26, §307

Internal Revenue Code — Source: USLM XML via OLRC

(a)If a shareholder in a corporation receives its stock or rights to acquire its stock (referred to in this subsection as “new stock”) in a distribution to which section 305(a) applies, then the basis of such new stock and of the stock with respect to which it is distributed (referred to in this section as “old stock”), respectively, shall, in the shareholder’s hands, be determined by allocating between the old stock and the new stock the adjusted basis of the old stock. Such allocation shall be made under regulations prescribed by the Secretary.

(b)(1)If—

(A)a corporation distributes rights to acquire its stock to a shareholder in a distribution to which section 305(a) applies, and

(B)the fair market value of such rights at the time of the distribution is less than 15 percent of the fair market value of the old stock at such time,

(2)The election referred to in paragraph (1) shall be made in the return filed within the time prescribed by law (including extensions thereof) for the taxable year in which such rights were received. Such election shall be made in such manner as the Secretary may by regulations prescribe, and shall be irrevocable when made.

(c)For basis of stock and stock rights distributed before June 22, 1954, see section 1052.

Editorial Notes

Amendments

1976—Subsecs. (a), (b)(2). Pub. L. 94–455 struck out “or his delegate” after “Secretary”.

§307 Basis of stock and stock rights acquired in distributions

Summary

Title 26, §307

Notes & Related Subsidiaries

Editorial Notes

Amendments

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