§362 Basis to corporations

Summary

When a corporation gets property in certain tax-free deals—like transfers under section 351, as paid-in surplus, or as part of a reorganization—the company usually takes the same tax cost (basis) the person who gave the property had. If the transferor has to report any gain on the transfer, the corporation’s basis goes up by that amount. That carryover rule does not apply to stock or securities of a company that is part of the reorganization unless those shares were received by swapping for the receiving company’s (or its controller’s) stock or securities. The law also sets limits and special rules. A corporation’s basis cannot be raised above the property’s fair market value just because a liability was assumed. The IRS can make rules for tricky cases, like nonrecourse debts tied to other assets when no one is taxed on the gain. If a transaction would bring in a net built-in loss, the basis of the affected property becomes its fair market value after the deal. If not, any needed basis cut is split among the transferred items in proportion to their built-in losses. The transferor and transferee can jointly choose an alternative rule for certain transfers, but that election follows IRS rules and cannot be changed later.