Title 26 — Internal Revenue CodeRelease 119-73
§362 Basis to Corporations
Title 26 › Subtitle Subtitle A— Income Taxes › Chapter 1— NORMAL TAXES AND SURTAXES › Subchapter C— Corporate Distributions and Adjustments › Part III— CORPORATE ORGANIZATIONS AND REORGANIZATIONS › Subpart C— Effects on Corporations › § 362
Summary
When a corporation receives property in a tax-free transfer from a controlling shareholder, as a contribution to capital, or in a reorganization, the corporation generally takes over the transferor's basis in the property, increased by any gain the transferor recognized on the transfer. Basis cannot be pushed above the property's fair market value just because the transferor recognized gain from the corporation assuming a liability. Special rules block importing or duplicating losses. If a transfer would bring a net built-in loss into the U.S. tax system, each imported property's basis is reset to its fair market value. In other transfers where the total basis of the property would exceed its fair market value, the corporation's basis is reduced to that value, with the reduction spread among the properties based on their built-in losses. The transferor and the corporation can instead jointly elect, irrevocably, to put the limit on the transferor's basis in the stock received rather than on the corporation's basis in the property.
Full Legal Text
Title 26, §362
Internal Revenue Code — Source: USLM XML via OLRC
(a)If property was acquired by a corporation—
(1)in connection with a transaction to which section 351 (relating to transfer of property to corporation controlled by transferor) applies, or
(2)as paid-in surplus or as a contribution to capital,
(b)If property was acquired by a corporation in connection with a reorganization to which this part applies, then the basis shall be the same as it would be in the hands of the transferor, increased in the amount of gain recognized to the transferor on such transfer. This subsection shall not apply if the property acquired consists of stock or securities in a corporation a party to the reorganization, unless acquired by the exchange of stock or securities of the transferee (or of a corporation which is in control of the transferee) as the consideration in whole or in part for the transfer.
(c)(1)Notwithstanding subsection (a)(2), if property other than money—
(A)is acquired by a corporation as a contribution to capital, and
(B)is not contributed by a shareholder as such,
(2)Notwithstanding subsection (a)(2), if money—
(A)is received by a corporation as a contribution to capital, and
(B)is not contributed by a shareholder as such,
(d)(1)In no event shall the basis of any property be increased under subsection (a) or (b) above the fair market value of such property (determined without regard to section 7701(g)) by reason of any gain recognized to the transferor as a result of the assumption of a liability.
(2)Except as provided in regulations, if—
(A)gain is recognized to the transferor as a result of an assumption of a nonrecourse liability by a transferee which is also secured by assets not transferred to such transferee; and
(B)no person is subject to tax under this title on such gain,
(e)(1)(A)If in any transaction described in subsection (a) or (b) there would (but for this subsection) be an importation of a net built-in loss, the basis of each property described in subparagraph (B) which is acquired in such transaction shall (notwithstanding subsections (a) and (b)) be its fair market value immediately after such transaction.
(B)For purposes of subparagraph (A), property is described in this subparagraph if—
(i)gain or loss with respect to such property is not subject to tax under this subtitle in the hands of the transferor immediately before the transfer, and
(ii)gain or loss with respect to such property is subject to such tax in the hands of the transferee immediately after such transfer.
(C)For purposes of subparagraph (A), there is an importation of a net built-in loss in a transaction if the transferee’s aggregate adjusted bases of property described in subparagraph (B) which is transferred in such transaction would (but for this paragraph) exceed the fair market value of such property immediately after such transaction.
(2)(A)If—
(i)property is transferred by a transferor in any transaction which is described in subsection (a) and which is not described in paragraph (1) of this subsection, and
(ii)the transferee’s aggregate adjusted bases of such property so transferred would (but for this paragraph) exceed the fair market value of such property immediately after such transaction,
(B)The aggregate reduction in basis by reason of subparagraph (A) shall be allocated among the property so transferred in proportion to their respective built-in losses immediately before the transaction.
(C)(i)If the transferor and transferee of a transaction described in subparagraph (A) both elect the application of this subparagraph—
(I)subparagraph (A) shall not apply, and
(II)the transferor’s basis in the stock received for property to which subparagraph (A) does not apply by reason of the election shall not exceed its fair market value immediately after the transfer.
(ii)Any election under clause (i) shall be made at such time and in such form and manner as the Secretary may prescribe, and, once made, shall be irrevocable.
Legislative History
Notes & Related Subsidiaries
Editorial Notes
Amendments
2018—Subsec. (a). Pub. L. 115–141 struck out comma after “acquired” in introductory provisions. 2014—Subsec. (a). Pub. L. 113–295 struck out “on or after
June 22, 1954” after “If property was acquired” in introductory provisions. Subsec. (c)(1)(A), (2)(A). Pub. L. 113–295 struck out “, on or after
June 22, 1954,” after “by a corporation”. 2005—Subsec. (e)(2)(C)(ii). Pub. L. 109–135 reenacted heading without change and amended text generally. Prior to amendment, text read as follows: “An election under clause (i) shall be included with the return of tax for the taxable year in which the transaction occurred, shall be in such form and manner as the Secretary may prescribe, and, once made, shall be irrevocable.” 2004—Subsec. (e). Pub. L. 108–357 added subsec. (e). 1999—Subsec. (d). Pub. L. 106–36 added subsec. (d). 1986—Subsec. (c)(3). Pub. L. 99–514 struck out par. (3) relating to exceptions for contributions in aid of
Construction
. 1976—Subsec. (c)(2)(B). Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary”. Subsec. (c)(3). Pub. L. 94–455, § 2120(b), added par. (3). 1968—Subsec. (b). Pub. L. 90–621 substituted the exchange of stock or securities of the transferee (or of a corporation which is in control of the transferee) for the issuance of stock or securities of the transferee as the transaction rendering the subsection applicable.
Statutory Notes and Related Subsidiaries
Effective Date
of 2014 AmendmentAmendment by Pub. L. 113–295 effective Dec. 19, 2014, subject to a
Savings Provision
, see section 221(b) of Pub. L. 113–295, set out as a note under section 1 of this title.
Effective Date
of 2005 AmendmentAmendment by Pub. L. 109–135 effective as if included in the provision of the American Jobs Creation Act of 2004, Pub. L. 108–357, to which such amendment relates, see section 403(nn) of Pub. L. 109–135, set out as a note under section 26 of this title.
Effective Date
of 2004 Amendment Pub. L. 108–357, title VIII, § 836(c)(1), Oct. 22, 2004, 118 Stat. 1596, provided that: “The amendment made by subsection (a) [amending this section] shall apply to transactions after the date of the enactment of this Act [Oct. 22, 2004].”
Effective Date
of 1999 AmendmentAmendment by Pub. L. 106–36 applicable to transfers after Oct. 18, 1998, see section 3001(e) of Pub. L. 106–36, set out as a note under section 351 of this title.
Effective Date
of 1986 AmendmentAmendment by Pub. L. 99–514 applicable to amounts received after Dec. 31, 1986, in taxable years ending after such date, with certain exceptions and qualifications, see section 824(c) of Pub. L. 99–514, set out as a note under section 118 of this title.
Effective Date
of 1976 AmendmentAmendment by section 2120(b) of Pub. L. 94–455 applicable to contributions made after Jan. 31, 1976, see section 2120(c) of Pub. L. 94–455, set out as a note under section 118 of this title.
Effective Date
of 1968 AmendmentAmendment by Pub. L. 90–621 applicable only in respect of plans of reorganization adopted after Oct. 22, 1968, see section 2(c) of Pub. L. 90–621, set out as a note under section 358 of this title.
Reference
Citations & Metadata
Citation
26 U.S.C. § 362
Title 26 — Internal Revenue Code
Last Updated
Apr 6, 2026
Release point: 119-73