US Code

Public Law 119-73 (01/23/2026)

26 U.S.C. § 358

Basis to distributees

(a)

General rule

In the case of an exchange to which section 351, 354, 355, 356, or 361 applies—
(1)

Nonrecognition property

The basis of the property permitted to be received under such section without the recognition of gain or loss shall be the same as that of the property exchanged—
(A)
decreased by—
(i)
the fair market value of any other property (except money) received by the taxpayer,
(ii)
the amount of any money received by the taxpayer, and
(iii)
the amount of loss to the taxpayer which was recognized on such exchange, and
(B)
increased by—
(i)
the amount which was treated as a dividend, and
(ii)
the amount of gain to the taxpayer which was recognized on such exchange (not including any portion of such gain which was treated as a dividend).
(2)

Other property

The basis of any other property (except money) received by the taxpayer shall be its fair market value.

(b)

Allocation of basis

(1)

In general

Under regulations prescribed by the Secretary, the basis determined under subsection (a)(1) shall be allocated among the properties permitted to be received without the recognition of gain or loss.

(2)

Special rule for section 355

In the case of an exchange to which section 355 (or so much of section 356 as relates to section 355) applies, then in making the allocation under paragraph (1) of this subsection, there shall be taken into account not only the property so permitted to be received without the recognition of gain or loss, but also the stock or securities (if any) of the distributing corporation which are retained, and the allocation of basis shall be made among all such properties.

(c)

Section 355 transactions which are not exchanges

For purposes of this section, a distribution to which section 355 (or so much of section 356 as relates to section 355) applies shall be treated as an exchange, and for such purposes the stock and securities of the distributing corporation which are retained shall be treated as surrendered, and received back, in the exchange.

(d)

Assumption of liability

(1)

In general

Where, as part of the consideration to the taxpayer, another party to the exchange assumed a liability of the taxpayer, such assumption shall, for purposes of this section, be treated as money received by the taxpayer on the exchange.

(2)

Exception

Paragraph (1) shall not apply to the amount of any liability excluded under section 357(c)(3).

(e)

Exception

This section shall not apply to property acquired by a corporation by the exchange of its stock or securities (or the stock or securities of a corporation which is in control of the acquiring corporation) as consideration in whole or in part for the transfer of the property to it.

(f)

Definition of nonrecognition property in case of section 361 exchange

For purposes of this section, the property permitted to be received under section 361 without the recognition of gain or loss shall be treated as consisting only of stock or securities in another corporation a party to the reorganization.

(g)

Adjustments in intragroup transactions involving section 355

In the case of a distribution to which section 355 (or so much of section 356 as relates to section 355) applies and which involves the distribution of stock from 1 member of an affiliated group (as defined in section 1504(a) without regard to subsection (b) thereof) to another member of such group, the Secretary may, notwithstanding any other provision of this section, provide adjustments to the adjusted basis of any stock which—
(1)
is in a corporation which is a member of such group, and
(2)
is held by another member of such group,
to appropriately reflect the proper treatment of such distribution.
(h)

Special rules for assumption of liabilities to which subsection (d) does not apply

(1)

In general

If, after application of the other provisions of this section to an exchange or series of exchanges, the basis of property to which subsection (a)(1) applies exceeds the fair market value of such property, then such basis shall be reduced (but not below such fair market value) by the amount (determined as of the date of the exchange) of any liability—
(A)
which is assumed by another person as part of the exchange, and
(B)
with respect to which subsection (d)(1) does not apply to the assumption.
(2)

Exceptions

Except as provided by the Secretary, paragraph (1) shall not apply to any liability if—
(A)
the trade or business with which the liability is associated is transferred to the person assuming the liability as part of the exchange, or
(B)
substantially all of the assets with which the liability is associated are transferred to the person assuming the liability as part of the exchange.
(3)

Liability

For purposes of this subsection, the term “liability” shall include any fixed or contingent obligation to make payment, without regard to whether the obligation is otherwise taken into account for purposes of this title.

Aug. 16, 1954, ch. 73668A Stat. 117Pub. L. 85–866, title I, § 21(a)72 Stat. 1620Pub. L. 90–621, § 2(a)82 Stat. 1311Pub. L. 94–253, § 1(b)90 Stat. 296Pub. L. 94–455, title XIX, § 1906(b)(13)(A)90 Stat. 1834Pub. L. 95–600, title III, § 365(b)92 Stat. 2855Pub. L. 100–647, title I, § 1018(d)(5)(B)102 Stat. 3580Pub. L. 101–508, title XI, § 11801(c)(8)(G)104 Stat. 1388–524Pub. L. 105–34, title X, § 1012(b)(2)111 Stat. 916Pub. L. 106–36, title III, § 3001(a)(2)113 Stat. 182Pub. L. 106–554, § 1(a)(7) [title III, § 309(a)]114 Stat. 2763Pub. L. 107–147, title IV, § 412(c)116 Stat. 53(, ; , , ; , , ; , , ; , , ; , , ; , , ; , , ; , , ; , (d)(6), , , 184; , , , 2763A–638; , , .)

Editorial Notes

Amendments

Pub. L. 107–1472002—Subsec. (h)(1)(A). amended subpar. (A) generally. Prior to amendment, subpar. (A) read as follows: “which is assumed in exchange for such property, and”.

Pub. L. 106–5542000—Subsec. (h). added subsec. (h).

Pub. L. 106–361999—Subsec. (d)(1). struck out “or acquired from the taxpayer property subject to a liability” after “liability of the taxpayer” and “or acquisition (in the amount of the liability)” after “such assumption”.

Pub. L. 105–341997—Subsec. (g). added subsec. (g).

Pub. L. 101–508, § 11801(c)(8)(G)(i)1990—Subsec. (a). , substituted “or 361” for “361, 371(b), or 374”.

Pub. L. 101–508, § 11801(c)(8)(G)(ii)Subsec. (b)(3). , struck out par. (3) “Certain exchanges involving ConRail” which read as follows: “To the extent provided in regulations prescribed by the Secretary in the case of an exchange to which section 354(d) (or so much of section 356 as relates to section 354(d)) or section 374(c) applies, for purposes of allocating basis under paragraph (1), stock of the Consolidated Rail Corporation and the certificate of value of the United States Railway Association which relates to such stock shall, so long as they are held by the same person, be treated as one property.”

Pub. L. 100–6471988—Subsec. (f). added subsec. (f).

Pub. L. 95–6001978—Subsec. (d). designated existing provisions as par. (1) and added par. (2).

Pub. L. 94–253, § 1(b)(1)1976—Subsec. (a). , substituted “371(b), or 374” for “or 371(b)”.

Pub. L. 94–455Subsec. (b)(1), (3). struck out “or his delegate” after “Secretary”.

Pub. L. 94–253, § 1(b)(2), added par. (3).

Pub. L. 90–6211968—Subsec. (e). substituted exchange of stock and securities for issuance of stock or securities as the transaction involved and inserted parenthetical provisions making reference to stock or securities of a corporation which is in control of the acquiring corporation.

Pub. L. 85–8661958—Subsec. (a)(1)(A)(iii). added cl. (iii).

Statutory Notes and Related Subsidiaries

Effective Date of 2002 Amendment

Pub. L. 107–147Pub. L. 106–554section 412(e) of Pub. L. 107–147section 151 of this titleAmendment by effective as if included in the provisions of the Community Renewal Tax Relief Act of 2000 [H.R. 5662, as enacted by ], to which such amendment relates, see , set out as a note under .

Effective Date of 2000 Amendment

Pub. L. 106–554, § 1(a)(7) [title III, § 309(d)]114 Stat. 2763

“(1)

In general .—

section 357 of this titleThe amendments made by this section [amending this section and ] shall apply to assumptions of liability after .
“(2)

Rules .—

The rules prescribed under subsection (c) [see Application of Comparable Rules to Partnerships and S Corporations note below] shall apply to assumptions of liability after , or such later date as may be prescribed in such rules.”
, , , 2763A–638, provided that:

Effective Date of 1999 Amendment

Pub. L. 106–36section 3001(e) of Pub. L. 106–36section 351 of this titleAmendment by applicable to transfers after , see , set out as a note under .

Effective Date of 1997 Amendment

Pub. L. 105–34section 355(e)(2)(A)(ii) of this titlesection 1012(d) of Pub. L. 105–34section 351 of this titleAmendment by applicable, with certain exceptions, to distributions after , pursuant to a plan (or series of related transactions) which involves an acquisition described in occurring after such date, see , set out as a note under .

Effective Date of 1988 Amendment

Pub. L. 100–647Pub. L. 99–514section 1019(a) of Pub. L. 100–647section 1 of this titleAmendment by effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, , to which such amendment relates, see , set out as a note under .

Effective Date of 1978 Amendment

Pub. L. 95–600section 365(c) of Pub. L. 95–600section 357 of this titleAmendment by applicable to transfers occurring on or after , see , set out as a note under .

Effective Date of 1976 Amendment

Pub. L. 94–253section 2 of Pub. L. 94–253section 354 of this titleAmendment by applicable to taxable years ending after , see , set out as a note under .

Effective Date of 1968 Amendment

Pub. L. 90–621, § 2(c)82 Stat. 1311

section 362 of this title“The amendments made by subsections (a) and (b) [amending this section and ] shall apply only in respect of plans of reorganization adopted after the date of the enactment of this Act [].”
, , , provided that:

Effective Date of 1958 Amendment

Pub. L. 85–866, § 21(b)72 Stat. 1620Pub. L. 99–514, § 2100 Stat. 2095

“The amendment made by subsection (a) [amending this section] shall apply as provided in section 393 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] as if the clause (iii) added by such amendment had been included in such Code at the time of its enactment [].”
, , , as amended by , , , provided that:

Savings Provision

Pub. L. 101–508section 11821(b) of Pub. L. 101–508section 45K of this titleFor provisions that nothing in amendment by be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to , for purposes of determining liability for tax for periods ending after , see , set out as a note under .

Abolition of United States Railway Association and Transfer of Functions

45 U.S.C. 701section 1341 of Title 45United States Railway Association abolished effective , all powers, duties, rights, and obligations of Association relating to Consolidated Rail Corporation under Regional Rail Reorganization Act of 1973 ( et seq.) transferred to Secretary of Transportation on , and any securities of Corporation held by Association transferred to Secretary of Transportation on , see , Railroads.

Application of Comparable Rules to Partnerships and S Corporations

Pub. L. 106–554, § 1(a)(7) [title III, § 309(c)]114 Stat. 2763

“The Secretary of the Treasury or his delegate—
“(1)
shall prescribe rules which provide appropriate adjustments under subchapter K of chapter 1 of the Internal Revenue Code of 1986 to prevent the acceleration or duplication of losses through the assumption of (or transfer of assets subject to) liabilities described in section 358(h)(3) of such Code (as added by subsection (a)) in transactions involving partnerships, and
“(2)
may prescribe rules which provide appropriate adjustments under subchapter S of chapter 1 of such Code in transactions described in paragraph (1) involving S corporations rather than partnerships.”
, , , 2763A–638, provided that: