Eligibility
Applies to liabilities excluded under section 357(c)(3) in exchanges involving sections 351, 354, 355, 356, or 361.
Frequently Asked Questions
Who is eligible for the Liability Assumption Basis Exclusion?
Applies to liabilities excluded under section 357(c)(3) in exchanges involving sections 351, 354, 355, 356, or 361.
How does the Liability Assumption Basis Exclusion work?
Excludes certain liabilities (those that would give rise to a deduction) from being treated as 'money received' for basis reduction purposes in corporate exchanges.
What law authorizes the Liability Assumption Basis Exclusion?
The Liability Assumption Basis Exclusion is authorized under IRC §358(d)(2) of the Internal Revenue Code (Title 26, United States Code).
Statutory Text — IRC §358
Source: Internal Revenue Code, Title 26, United States Code
§ 358. Basis to distributees(a) General ruleIn the case of an exchange to which section 351, 354, 355, 356, or 361 applies—(1) Nonrecognition propertyThe 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 propertyThe basis of any other property (except money) received by the taxpayer shall be its fair market value.
(b) Allocation of basis(1) In generalUnder 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 355In 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 exchangesFor 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 generalWhere, 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) ExceptionParagraph (1) shall not apply to the amount of any liability excluded under section 357(c)(3).
(e) ExceptionThis 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.
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