§362 Basis to Corporations

Summary

When a corporation receives property in a tax-free transfer (for example under section 351), or as paid-in surplus or a capital contribution, the corporation generally takes the same tax basis the transferor had. If the property comes from a corporate reorganization, the corporation’s basis is the transferor’s basis plus any gain the transferor had to report. That rule does not apply to stock or securities of a company involved in the reorganization unless they were received in exchange for the transferee’s (or its controller’s) stock. Some special rules change the result in certain cases. If property or money is contributed to capital by someone who is not a shareholder, different rules apply. A basis cannot be increased above the property’s fair market value just because a liability was assumed. There are extra rules for assumed nonrecourse debts that are also secured by assets not transferred, and for cases where no one is taxed on the gain. Rules also prevent importing a net built-in loss: when that would happen, affected property gets a basis equal to its fair market value right after the transfer, or the aggregate bases are reduced across the properties in proportion to their built-in losses. The transferor and transferee can make a joint election to use an alternative treatment if they follow IRS rules; that election is final.