Title 26 — Internal Revenue CodeRelease 119-73
§358 Basis to distributees
Title 26 › Subtitle Subtitle A— - Income Taxes › Chapter CHAPTER 1— - NORMAL TAXES AND SURTAXES › Subchapter Subchapter C— - Corporate Distributions and Adjustments › Part PART III— - CORPORATE ORGANIZATIONS AND REORGANIZATIONS › Subpart Subpart B— - Effects on Shareholders and Security Holders › § 358
Summary
Sets the rules for figuring the tax cost (basis) of property you get in certain tax-free corporate exchanges (like 351, 354, 355, 356, and 361). If you get property in one of these exchanges without recognizing gain or loss, its starting basis usually comes from the property you gave up. That basis is lowered by the value of any other non-cash property you get, by any cash you get, and by any loss you recognized. It is raised by any amount treated as a dividend and by any gain you did recognize (but not the part treated as a dividend). Any other non-cash property you get has a basis equal to its fair market value. The tax official can set rules to divide the original basis among the properties received. In split-offs (section 355) you must also count any stock the distributing company kept and split basis among everything. If someone else takes on your debt as part of the deal, that counts as cash you received unless a specific rule (section 357(c)(3)) removes it. Some exchanges are excluded, and there are special rules if the computed basis is more than the property’s value or if liabilities are tied to a transferred business. Liability means any fixed or possible payment you owe.
Full Legal Text
Title 26, §358
Internal Revenue Code — Source: USLM XML via OLRC
(a)In the case of an exchange to which section 351, 354, 355, 356, or 361 applies—
(1)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—
(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)The basis of any other property (except money) received by the taxpayer shall be its fair market value.
(b)(1)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)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.
(c)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)(1)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)Paragraph (1) shall not apply to the amount of any liability excluded under section 357(c)(3).
(e)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)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)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,
(h)(1)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—
(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)Except 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)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
Notes & Related Subsidiaries
Editorial Notes
Amendments
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 AmendmentAmendment 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 AmendmentAmendment 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 AmendmentAmendment 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 AmendmentAmendment 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 AmendmentAmendment 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 AmendmentAmendment 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.”
Reference
Citations & Metadata
Citation
26 U.S.C. § 358
Title 26 — Internal Revenue Code
Last Updated
Apr 6, 2026
Release point: 119-73