§307 Basis of Stock and Stock Rights Acquired in Distributions

Summary

When a shareholder gets new shares or rights to buy shares in a distribution covered by section 305(a), the shareholder must split the original shares’ adjusted tax basis between the old shares and the new ones. The IRS will set the rules for how to make that split. If the corporation only gives rights to buy stock and those rights are worth less than 15 percent of the old shares’ fair market value at the time, the rights have a zero tax basis unless the shareholder chooses the split method instead. That choice must be made on the tax return filed by the regular due date (including extensions), in the way the IRS requires, and it cannot be changed once made. For distributions before June 22, 1954, see section 1052.