§961 Adjustments to basis of stock in controlled foreign corporations and of other property

Summary

Require U.S. shareholders to change the tax basis of their CFC stock or related property when they must include CFC income or when they receive amounts excluded from income. If a shareholder must include an amount under section 951(a), they must raise their basis by the amount actually included. If they made a section 962 election, the basis increase cannot be more than the tax paid on those included amounts. If a shareholder receives an amount excluded under section 959(a), they must lower the basis of the stock or property by the excluded amount. If a prior section 962 election applies, that reduction cannot exceed the excluded amount after applying section 962(d). If the excluded amount is larger than the adjusted basis, the extra is treated as a gain from selling property. If a U.S. shareholder is treated under section 958(a)(2) as owning CFC stock through another CFC, the same increases and decreases apply to both levels of stock. If a U.S. domestic corporation got a dividend from a specified 10-percent owned foreign corporation, it must cut its basis in that foreign stock (not below zero) by any deduction allowed under section 245A for that stock, except to the extent the basis was already reduced under section 1059 for a dividend that allowed that deduction.