Title 26, Internal Revenue CodeRelease 119-110
§961 Adjustments to Basis of Stock in Controlled Foreign Corporations and of Other Property
Title 26 › Subtitle A — Income Taxes › CHAPTER 1 — NORMAL TAXES AND SURTAXES › Subchapter N — Tax Based on Income From Sources Within or Without the United States › PART III — INCOME FROM SOURCES WITHOUT THE UNITED STATES › Subpart F — Controlled Foreign Corporations › § 961
Summary
Increase the owner’s tax basis in a controlled foreign corporation’s stock or in property that makes a U.S. person treated as owning such stock when that owner must include an amount in income under section 951(a). The increase only happens for the part actually included in income. If the owner made the election under section 962 for the year, the increase can’t be more than the tax paid on those included amounts. Reduce the adjusted basis when the owner receives an amount that is excluded from income under section 959(a). If the excluded amount is bigger than the basis, the excess counts as a gain. If a U.S. person is treated as owning stock through another foreign corporation under section 958(a)(2), make similar increases or decreases to the bases of the related stock for figuring section 951 items. For a domestic corporation that got a dividend from a specified 10%-owned foreign corporation (section 245A), cut its basis in that foreign stock by the section 245A deduction (not below zero), except to the extent the basis was already cut under section 1059.
Full Legal Text
Title 26, §961
Internal Revenue Code, Source: USLM XML via OLRC
(a)Increase in basis
Under regulations prescribed by the Secretary, the basis of a United States shareholder’s stock in a controlled foreign corporation, and the basis of property of a United States shareholder by reason of which he is considered under section 958(a)(2) as owning stock of a controlled foreign corporation, shall be increased by the amount required to be included in his gross income under section 951(a) with respect to such stock or with respect to such property, as the case may be, but only to the extent to which such amount was included in the gross income of such United States shareholder. In the case of a United States shareholder who has made an election under section 962 for the taxable year, the increase in basis provided by this subsection shall not exceed an amount equal to the amount of tax paid under this chapter with respect to the amounts required to be included in his gross income under section 951(a).
(b)Reduction in basis
(1)In general
Under regulations prescribed by the Secretary, the adjusted basis of stock or other property with respect to which a United States shareholder or a United States person receives an amount which is excluded from gross income under section 959(a) shall be reduced by the amount so excluded. In the case of a United States shareholder who has made an election under section 962 for any prior taxable year, the reduction in basis provided by this paragraph shall not exceed an amount equal to the amount received which is excluded from gross income under section 959(a) after the application of section 962(d).
(2)Amount in excess of basis
To the extent that an amount excluded from gross income under section 959(a) exceeds the adjusted basis of the stock or other property with respect to which it is received, the amount shall be treated as gain from the sale or exchange of property.
(c)Basis adjustments in stock held by foreign corporations
Under regulations prescribed by the Secretary, if a United States shareholder is treated under section 958(a)(2) as owning stock in a controlled foreign corporation which is owned by another controlled foreign corporation, then adjustments similar to the adjustments provided by subsections (a) and (b) shall be made to—
(1)the basis of such stock, and
(2)the basis of stock in any other controlled foreign corporation by reason of which the United States shareholder is considered under section 958(a)(2) as owning the stock described in paragraph (1),
but only for the purposes of determining the amount included under section 951 in the gross income of such United States shareholder (or any other United States shareholder who acquires from any person any portion of the interest of such United States shareholder by reason of which such shareholder was treated as owning such stock, but only to the extent of such portion, and subject to such proof of identity of such interest as the Secretary may prescribe by regulations). The preceding sentence shall not apply with respect to any stock to which a basis adjustment applies under subsection (a) or (b).
(d)Basis in specified 10-percent owned foreign corporation reduced by nontaxed portion of dividend for purposes of determining loss
If a domestic corporation received a dividend from a specified 10-percent owned foreign corporation (as defined in section 245A) in any taxable year, solely for purposes of determining loss on any disposition of stock of such foreign corporation in such taxable year or any subsequent taxable year, the basis of such domestic corporation in such stock shall be reduced (but not below zero) by the amount of any deduction allowable to such domestic corporation under section 245A with respect to such stock except to the extent such basis was reduced under section 1059 by reason of a dividend for which such a deduction was allowable.
Legislative History
Notes & Related Subsidiaries
Editorial Notes
Amendments
2017—Subsec. (d). Pub. L. 115–97 added subsec. (d). 2005—Subsec. (c). Pub. L. 109–135 amended heading and text of subsec. (c) generally. Prior to amendment, text read as follows: “Under
Regulations
prescribed by the Secretary, if a United States shareholder is treated under section 958(a)(2) as owning any stock in a controlled foreign corporation which is actually owned by another controlled foreign corporation, adjustments similar to the adjustments provided by subsections (a) and (b) shall be made to the basis of such stock in the hands of such other controlled foreign corporation, but only for the purposes of determining the amount included under section 951 in the gross income of such United States shareholder (or any other United States shareholder who acquires from any person any portion of the interest of such United States shareholder by reason of which such shareholder was treated as owning such stock, but only to the extent of such portion, and subject to such proof of identity of such interest as the Secretary may prescribe by
Regulations
).” 1997—Subsec. (c). Pub. L. 105–34 added subsec. (c). 1976—Subsecs. (a), (b)(1). Pub. L. 94–455 struck out “or his delegate” after “Secretary”.
Statutory Notes and Related Subsidiaries
Effective Date
of 2017 Amendment Pub. L. 115–97, title I, § 14102(b)(2), Dec. 22, 2017, 131 Stat. 2192, provided that: “The
Amendments
made by this subsection [amending this section] shall apply to distributions made after December 31, 2017.”
Effective Date
of 2005 Amendment Pub. L. 109–135, title IV, § 409(d), Dec. 21, 2005, 119 Stat. 2636, provided that: “The
Amendments
made by this section [amending this section and section 6038B, 6411, and 6601 of this title] shall take effect as if included in the provisions of the Taxpayer Relief Act of 1997 [Pub. L. 105–34] to which they relate.”
Effective Date
of 1997 Amendment Pub. L. 105–34, title XI, § 1112(b)(2), Aug. 5, 1997, 111 Stat. 969, provided that: “The amendment made by paragraph (1) [amending this section] shall apply for purposes of determining inclusions for taxable years of United States shareholders beginning after December 31, 1997.” Dual Resident CompaniesBasis adjustments of this section not applicable in certain circumstances involving dual resident companies, see section 6126 of Pub. L. 100–647, set out as a note under section 1502 of this title.
Reference
Citations & Metadata
Citation
26 U.S.C. § 961
Title 26, Internal Revenue Code
Last Updated
Sep 22, 2026
Release point: 119-110