Frequently Asked Questions
Who is eligible for the Stock Dividend Basis Allocation?
Applies to shareholders receiving stock or stock rights in a distribution to which section 305(a) applies.
How does the Stock Dividend Basis Allocation work?
When receiving tax-free stock dividends or rights, the basis of the original stock is allocated between the old and new stock, potentially reducing gain on a future sale of specific lots.
What law authorizes the Stock Dividend Basis Allocation?
The Stock Dividend Basis Allocation is authorized under IRC §307(a) of the Internal Revenue Code (Title 26, United States Code).
Statutory Text — IRC §307
Source: Internal Revenue Code, Title 26, United States Code
§ 307. Basis of stock and stock rights acquired in distributions(a) General ruleIf a shareholder in a corporation receives its stock or rights to acquire its stock (referred to in this subsection as “new stock”) in a distribution to which section 305(a) applies, then the basis of such new stock and of the stock with respect to which it is distributed (referred to in this section as “old stock”), respectively, shall, in the shareholder’s hands, be determined by allocating between the old stock and the new stock the adjusted basis of the old stock. Such allocation shall be made under regulations prescribed by the Secretary.
(b) Exception for certain stock rights(1) In generalIf—(A) a corporation distributes rights to acquire its stock to a shareholder in a distribution to which section 305(a) applies, and
(B) the fair market value of such rights at the time of the distribution is less than 15 percent of the fair market value of the old stock at such time,
then subsection (a) shall not apply and the basis of such rights shall be zero, unless the taxpayer elects under paragraph (2) of this subsection to determine the basis of the old stock and of the stock rights under the method of allocation provided in subsection (a).
(2) ElectionThe election referred to in paragraph (1) shall be made in the return filed within the time prescribed by law (including extensions thereof) for the taxable year in which such rights were received. Such election shall be made in such manner as the Secretary may by regulations prescribe, and shall be irrevocable when made.
(c) Cross referenceFor basis of stock and stock rights distributed before June 22, 1954, see section 1052.
(Aug. 16, 1954, ch. 736, 68A Stat. 93; Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834.)
Editorial Notes
Amendments1976—Subsecs. (a), (b)(2). Pub. L. 94–455 struck out “or his delegate” after “Secretary”.