IRS Says Corporate Debt Won’t Shrink Stock Basis in Group Transfers
Published Date: 10/16/2026
Rule
Summary
Starting October 16, 2026, companies that file taxes together as a group (called consolidated groups) will see a change: when one member takes on certain debts from another, it won’t lower the value of the stock they get in return. This update makes tax rules clearer and helps these groups avoid confusion or unexpected tax hits. If you’re part of a consolidated group, this change affects how you handle transfers and stock basis calculations.
Analyzed Economic Effects
4 provisions identified: 2 benefits, 1 costs, 1 mixed.
Liability Assumptions Won't Cut Stock Basis
If your company is part of a consolidated group and one member transfers property to another in a section 351 exchange, a transferee member's assumption of liabilities described in section 357(c)(3)(A) will not reduce the transferor member's basis in the transferee's stock. The rule cites section 358(d)(2) as excluding those liabilities for purposes of computing liabilities treated as money received. This rule is effective October 16, 2026.
When the Rule Starts to Apply
The amendments apply to consolidated return years for which the return due date (without regard to extensions) is after October 16, 2026. In other words, if your consolidated group's tax return due date falls after October 16, 2026, the clarified basis rules govern transfers in those years.
Rule Excludes Transfers Causing Nonmember Status
The rule in paragraph (d) does not apply to a transaction if the transferor or transferee becomes a nonmember of the consolidated group as part of the same plan or arrangement. A transferor (or transferee) is treated as becoming a nonmember once it is no longer a member of a consolidated group that includes the transferee (or transferor).
Numerical Example of Basis Outcome
The final regulations include an example: P owns S1, which has assets with fair market value $100 and basis $30 and $40 of liabilities (of which $5 are described in section 357(c)(3)(A) but not (3)(B), and $35 are not so described). S1 transfers assets to new subsidiary S2 in a section 351 exchange; under the rule, $5 is excluded from liabilities treated as money and S1's basis in S2 stock is an excess loss account of $5 (reflecting $30 basis reduced by $35).
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