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Title 26 — Internal Revenue CodeRelease 119-73

§307 Basis of Stock and Stock Rights Acquired in Distributions

Title 26 › Subtitle Subtitle A— Income Taxes › Chapter 1— NORMAL TAXES AND SURTAXES › Subchapter C— Corporate Distributions and Adjustments › Part I— DISTRIBUTIONS BY CORPORATIONS › Subpart A— Effects on Recipients › § 307

Last updated Apr 6, 2026|Official source

Summary

When you receive new shares or stock rights from a company tax-free under section 305(a), you do not get a fresh cost basis. Instead, you split the cost basis of your old shares between the old shares and the new stock or rights, following IRS regulations. There is a special rule for stock rights worth less than 15 percent of the old stock's value at the time of the distribution: their basis is treated differently unless you elect otherwise on your tax return for the year you received them, and that election cannot be undone. Stock distributed before June 22, 1954 falls under section 1052 instead.

Full Legal Text

Title 26, §307

Internal Revenue Code — Source: USLM XML via OLRC

(a)If a shareholder in a corporation receives its stock or rights to acquire its stock (referred to in this subsection as “new stock”) in a distribution to which section 305(a) applies, then the basis of such new stock and of the stock with respect to which it is distributed (referred to in this section as “old stock”), respectively, shall, in the shareholder’s hands, be determined by allocating between the old stock and the new stock the adjusted basis of the old stock. Such allocation shall be made under regulations prescribed by the Secretary.
(b)(1)If—
(A)a corporation distributes rights to acquire its stock to a shareholder in a distribution to which section 305(a) applies, and
(B)the fair market value of such rights at the time of the distribution is less than 15 percent of the fair market value of the old stock at such time,
(2)The election referred to in paragraph (1) shall be made in the return filed within the time prescribed by law (including extensions thereof) for the taxable year in which such rights were received. Such election shall be made in such manner as the Secretary may by regulations prescribe, and shall be irrevocable when made.
(c)For basis of stock and stock rights distributed before June 22, 1954, see section 1052.

Legislative History

Notes & Related Subsidiaries

Editorial Notes

Amendments

1976—Subsecs. (a), (b)(2). Pub. L. 94–455 struck out “or his delegate” after “Secretary”.

Reference

Citations & Metadata

Citation

26 U.S.C. § 307

Title 26 — Internal Revenue Code

Last Updated

Apr 6, 2026

Release point: 119-73