USC Subchapter O

USC Subchapter O
in effect

26 U.S.C. § 1031 Exchange of real property held for productive use or investment

(a) Nonrecognition of gain or loss from exchanges solely in kind(1) In generalNo gain or loss shall be recognized on the exchange of real property held for productive use in a trade or business or for investment if such real property is exchanged solely for real property of like kind which is to be held either for productive use in a trade or business or for investment. (2) Exception for real property held for saleThis subsection shall not apply to any exchange of real property held primarily for sale. (3) Requirement that property be identified and that exchange be completed not more than 180 days after transfer of exchanged propertyFor purposes of this subsection, any property received by the taxpayer shall be treated as property which is not like-kind property if—(A) such property is not identified as property to be received in the exchange on or before the day which is 45 days after the date on which the taxpayer transfers the property relinquished in the exchange, or (B) such property is received after the earlier of—(i) the day which is 180 days after the date on which the taxpayer transfers the property relinquished in the exchange, or (ii) the due date (determined with regard to extension) for the transferor’s return of the tax imposed by this chapter for the taxable year in which the transfer of the relinquished property occurs. (b) Gain from exchanges not solely in kindIf an exchange would be within the provisions of subsection (a), of section 1035(a), of section 1036(a), or of section 1037(a), if it were not for the fact that the property received in exchange consists not only of property permitted by such provisions to be received without the recognition of gain, but also of other property or money, then the gain, if any, to the recipient shall be recognized, but in an amount not in excess of the sum of such money and the fair market value of such other property. (c) Loss from exchanges not solely in kindIf an exchange would be within the provisions of subsection (a), of section 1035(a), of section 1036(a), or of section 1037(a), if it were not for the fact that the property received in exchange consists not only of property permitted by such provisions to be received without the recognition of gain or loss, but also of other property or money, then no loss from the exchange shall be recognized. (d) BasisIf property was acquired on an exchange described in this section, section 1035(a), section 1036(a), or section 1037(a), then the basis shall be the same as that of the property exchanged, decreased in the amount of any money received by the taxpayer and increased in the amount of gain or decreased in the amount of loss to the taxpayer that was recognized on such exchange. If the property so acquired consisted in part of the type of property permitted by this section, section 1035(a), section 1036(a), or section 1037(a), to be received without the recognition of gain or loss, and in part of other property, the basis provided in this subsection shall be allocated between the properties (other than money) received, and for the purpose of the allocation there shall be assigned to such other property an amount equivalent to its fair market value at the date of the exchange. For purposes of this section, section 1035(a), and section 1036(a), where as part of the consideration to the taxpayer another party to the exchange assumed (as determined under section 357(d)) a liability of the taxpayer, such assumption shall be considered as money received by the taxpayer on the exchange. (e) Application to certain partnershipsFor purposes of this section, an interest in a partnership which has in effect a valid election under section 761(a) to be excluded from the application of all of subchapter K shall be treated as an interest in each of the assets of such partnership and not as an interest in a partnership. (f) Special rules for exchanges between related persons(1) In generalIf—(A) a taxpayer exchanges property with a related person, (B) there is nonrecognition of gain or loss to the taxpayer under this section with respect to the exchange of such property (determined without regard to this subsection), and (C) before the date 2 years after the date of the last transfer which was part of such exchange—(i) the related person disposes of such property, or (ii) the taxpayer disposes of the property received in the exchange from the related person which was of like kind to the property transferred by the taxpayer, there shall be no nonrecognition of gain or loss under this section to the taxpayer with respect to such exchange; except that any gain or loss recognized by the taxpayer by reason of this subsection shall be taken into account as of the date on which the disposition referred to in subparagraph (C) occurs. (2) Certain dispositions not taken into accountFor purposes of paragraph (1)(C), there shall not be taken into account any disposition—(A) after the earlier of the death of the taxpayer or the death of the related person, (B) in a compulsory or involuntary conversion (within the meaning of section 1033) if the exchange occurred before the threat or imminence of such conversion, or (C) with respect to which it is established to the satisfaction of the Secretary that neither the exchange nor such disposition had as one of its principal purposes the avoidance of Federal income tax. (3) Related personFor purposes of this subsection, the term “related person” means any person bearing a relationship to the taxpayer described in section 267(b) or 707(b)(1). (4) Treatment of certain transactionsThis section shall not apply to any exchange which is part of a transaction (or series of transactions) structured to avoid the purposes of this subsection. (g) Special rule where substantial diminution of risk(1) In generalIf paragraph (2) applies to any property for any period, the running of the period set forth in subsection (f)(1)(C) with respect to such property shall be suspended during such period. (2) Property to which subsection appliesThis paragraph shall apply to any property for any period during which the holder’s risk of loss with respect to the property is substantially diminished by—(A) the holding of a put with respect to such property, (B) the holding by another person of a right to acquire such property, or (C) a short sale or any other transaction. (h) Special rules for foreign real propertyReal property located in the United States and real property located outside the United States are not property of a like kind.

26 U.S.C. § 1032 Exchange of stock for property

(a) Nonrecognition of gain or lossNo gain or loss shall be recognized to a corporation on the receipt of money or other property in exchange for stock (including treasury stock) of such corporation. No gain or loss shall be recognized by a corporation with respect to any lapse or acquisition of an option, or with respect to a securities futures contract (as defined in section 1234B), to buy or sell its stock (including treasury stock). (b) BasisFor basis of property acquired by a corporation in certain exchanges for its stock, see section 362.

26 U.S.C. § 1033 Involuntary conversions

(a) General ruleIf property (as a result of its destruction in whole or in part, theft, seizure, or requisition or condemnation or threat or imminence thereof) is compulsorily or involuntarily converted—(1) Conversion into similar propertyInto property similar or related in service or use to the property so converted, no gain shall be recognized. (2) Conversion into moneyInto money or into property not similar or related in service or use to the converted property, the gain (if any) shall be recognized except to the extent hereinafter provided in this paragraph:(A) Nonrecognition of gainIf the taxpayer during the period specified in subparagraph (B), for the purpose of replacing the property so converted, purchases other property similar or related in service or use to the property so converted, or purchases stock in the acquisition of control of a corporation owning such other property, at the election of the taxpayer the gain shall be recognized only to the extent that the amount realized upon such conversion (regardless of whether such amount is received in one or more taxable years) exceeds the cost of such other property or such stock. Such election shall be made at such time and in such manner as the Secretary may by regulations prescribe. For purposes of this paragraph—(i) no property or stock acquired before the disposition of the converted property shall be considered to have been acquired for the purpose of replacing such converted property unless held by the taxpayer on the date of such disposition; and (ii) the taxpayer shall be considered to have purchased property or stock only if, but for the provisions of subsection (b) of this section, the unadjusted basis of such property or stock would be its cost within the meaning of section 1012. (B) Period within which property must be replacedThe period referred to in subparagraph (A) shall be the period beginning with the date of the disposition of the converted property, or the earliest date of the threat or imminence of requisition or condemnation of the converted property, whichever is the earlier, and ending—(i) 2 years after the close of the first taxable year in which any part of the gain upon the conversion is realized, or (ii) subject to such terms and conditions as may be specified by the Secretary, at the close of such later date as the Secretary may designate on application by the taxpayer. Such application shall be made at such time and in such manner as the Secretary may by regulations prescribe. (C) Time for assessment of deficiency attributable to gain upon conversionIf a taxpayer has made the election provided in subparagraph (A), then—(i) the statutory period for the assessment of any deficiency, for any taxable year in which any part of the gain on such conversion is realized, attributable to such gain shall not expire prior to the expiration of 3 years from the date the Secretary is notified by the taxpayer (in such manner as the Secretary may by regulations prescribe) of the replacement of the converted property or of an intention not to replace, and (ii) such deficiency may be assessed before the expiration of such 3–year period notwithstanding the provisions of section 6212(c) or the provisions of any other law or rule of law which would otherwise prevent such assessment. (D) Time for assessment of other deficiencies attributable to electionIf the election provided in subparagraph (A) is made by the taxpayer and such other property or such stock was purchased before the beginning of the last taxable year in which any part of the gain upon such conversion is realized, any deficiency, to the extent resulting from such election, for any taxable year ending before such last taxable year may be assessed (notwithstanding the provisions of section 6212(c) or 6501 or the provisions of any other law or rule of law which would otherwise prevent such assessment) at any time before the expiration of the period within which a deficiency for such last taxable year may be assessed. (E) DefinitionsFor purposes of this paragraph—(i) ControlThe term “control” means the ownership of stock possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote and at least 80 percent of the total number of shares of all other classes of stock of the corporation. (ii) Disposition of the converted propertyThe term “disposition of the converted property” means the destruction, theft, seizure, requisition, or condemnation of the converted property, or the sale or exchange of such property under threat or imminence of requisition or condemnation. (b) Basis of property acquired through involuntary conversion(1) Conversions described in subsection (a)(1)If the property was acquired as the result of a compulsory or involuntary conversion described in subsection (a)(1), the basis shall be the same as in the case of the property so converted—(A) decreased in the amount of any money received by the taxpayer which was not expended in accordance with the provisions of law (applicable to the year in which such conversion was made) determining the taxable status of the gain or loss upon such conversion, and (B) increased in the amount of gain or decreased in the amount of loss to the taxpayer recognized upon such conversion under the law applicable to the year in which such conversion was made. (2) Conversions described in subsection (a)(2)In the case of property purchased by the taxpayer in a transaction described in subsection (a)(2) which resulted in the nonrecognition of any part of the gain realized as the result of a compulsory or involuntary conversion, the basis shall be the cost of such property decreased in the amount of the gain not so recognized; and if the property purchased consists of more than 1 piece of property, the basis determined under this sentence shall be allocated to the purchased properties in proportion to their respective costs. (3) Property held by corporation the stock of which is replacement property(A) In generalIf the basis of stock in a corporation is decreased under paragraph (2), an amount equal to such decrease shall also be applied to reduce the basis of property held by the corporation at the time the taxpayer acquired control (as defined in subsection (a)(2)(E)) of such corporation. (B) LimitationSubparagraph (A) shall not apply to the extent that it would (but for this subparagraph) require a reduction in the aggregate adjusted bases of the property of the corporation below the taxpayer’s adjusted basis of the stock in the corporation (determined immediately after such basis is decreased under paragraph (2)). (C) Allocation of basis reductionThe decrease required under subparagraph (A) shall be allocated—(i) first to property which is similar or related in service or use to the converted property, (ii) second to depreciable property (as defined in section 1017(b)(3)(B)) not described in clause (i), and (iii) then to other property. (D) Special rules(i) Reduction not to exceed adjusted basis of propertyNo reduction in the basis of any property under this paragraph shall exceed the adjusted basis of such property (determined without regard to such reduction). (ii) Allocation of reduction among propertiesIf more than 1 property is described in a clause of subparagraph (C), the reduction under this paragraph shall be allocated among such property in proportion to the adjusted bases of such property (as so determined). (c) Property sold pursuant to reclamation lawsFor purposes of this subtitle, if property lying within an irrigation project is sold or otherwise disposed of in order to conform to the acreage limitation provisions of Federal reclamation laws, such sale or disposition shall be treated as an involuntary conversion to which this section applies. (d) Livestock destroyed by diseaseFor purposes of this subtitle, if livestock are destroyed by or on account of disease, or are sold or exchanged because of disease, such destruction or such sale or exchange shall be treated as an involuntary conversion to which this section applies. (e) Livestock sold on account of drought, flood, or other weather-related conditions(1) In generalFor purposes of this subtitle, the sale or exchange of livestock (other than poultry) held by a taxpayer for draft, breeding, or dairy purposes in excess of the number the taxpayer would sell if he followed his usual business practices shall be treated as an involuntary conversion to which this section applies if such livestock are sold or exchanged by the taxpayer solely on account of drought, flood, or other weather-related conditions. (2) Extension of replacement period(A) In generalIn the case of drought, flood, or other weather-related conditions described in paragraph (1) which result in the area being designated as eligible for assistance by the Federal Government, subsection (a)(2)(B) shall be applied with respect to any converted property by substituting “4 years” for “2 years”. (B) Further extension by SecretaryThe Secretary may extend on a regional basis the period for replacement under this section (after the application of subparagraph (A)) for such additional time as the Secretary determines appropriate if the weather-related conditions which resulted in such application continue for more than 3 years. (f) Replacement of livestock with other farm property in certain casesFor purposes of subsection (a), if, because of drought, flood, or other weather-related conditions, or soil contamination or other environmental contamination, it is not feasible for the taxpayer to reinvest the proceeds from compulsorily or involuntarily converted livestock in property similar or related in use to the livestock so converted, other property (including real property in the case of soil contamination or other environmental contamination) used for farming purposes shall be treated as property similar or related in service or use to the livestock so converted. (g) Condemnation of real property held for productive use in trade or business or for investment(1) Special ruleFor purposes of subsection (a), if real property (not including stock in trade or other property held primarily for sale) held for productive use in trade or business or for investment is (as the result of its seizure, requisition, or condemnation, or threat or imminence thereof) compulsorily or involuntarily converted, property of a like kind to be held either for productive use in trade or business or for investment shall be treated as property similar or related in service or use to the property so converted. (2) LimitationsParagraph (1) shall not apply to the purchase of stock in the acquisition of control of a corporation described in subsection (a)(2)(A). (3) Election to treat outdoor advertising displays as real property(A) In generalA taxpayer may elect, at such time and in such manner as the Secretary may prescribe, to treat property which constitutes an outdoor advertising display as real property for purposes of this chapter. The election provided by this subparagraph may not be made with respect to any property with respect to which an election under section 179(a) (relating to election to expense certain depreciable business assets) is in effect. (B) ElectionAn election made under subparagraph (A) may not be revoked without the consent of the Secretary. (C) Outdoor advertising displayFor purposes of this paragraph, the term “outdoor advertising display” means a rigidly assembled sign, display, or device permanently affixed to the ground or permanently attached to a building or other inherently permanent structure constituting, or used for the display of, a commercial or other advertisement to the public. (D) Character of replacement propertyFor purposes of this subsection, an interest in real property purchased as replacement property for a compulsorily or involuntarily converted outdoor advertising display defined in subparagraph (C) (and treated by the taxpayer as real property) shall be considered property of a like kind as the property converted without regard to whether the taxpayer’s interest in the replacement property is the same kind of interest the taxpayer held in the converted property. (4) Special ruleIn the case of a compulsory or involuntary conversion described in paragraph (1), subsection (a)(2)(B)(i) shall be applied by substituting “3 years” for “2 years”. (h) Special rules for property damaged by federally declared disasters(1) Principal residencesIf the taxpayer’s principal residence or any of its contents is located in a disaster area and is compulsorily or involuntarily converted as a result of a federally declared disaster—(A) Treatment of insurance proceeds(i) Exclusion for unscheduled personal propertyNo gain shall be recognized by reason of the receipt of any insurance proceeds for personal property which was part of such contents and which was not scheduled property for purposes of such insurance. (ii) Other proceeds treated as common fundIn the case of any insurance proceeds (not described in clause (i)) for such residence or contents—(I) such proceeds shall be treated as received for the conversion of a single item of property, and (II) any property which is similar or related in service or use to the residence so converted (or contents thereof) shall be treated for purposes of subsection (a)(2) as property similar or related in service or use to such single item of property. (B) Extension of replacement periodSubsection (a)(2)(B) shall be applied with respect to any property so converted by substituting “4 years” for “2 years”. (2) Trade or business and investment propertyIf a taxpayer’s property held for productive use in a trade or business or for investment is located in a disaster area and is compulsorily or involuntarily converted as a result of a federally declared disaster, tangible property of a type held for productive use in a trade or business shall be treated for purposes of subsection (a) as property similar or related in service or use to the property so converted. (3) Federally declared disaster; disaster areaThe terms “federally declared disaster” and “disaster area” shall have the respective meaning given such terms by section 165(i)(5). (4) Principal residenceFor purposes of this subsection, the term “principal residence” has the same meaning as when used in section 121, except that such term shall include a residence not treated as a principal residence solely because the taxpayer does not own the residence. (i) Replacement property must be acquired from unrelated person in certain cases(1) In generalIf the property which is involuntarily converted is held by a taxpayer to which this subsection applies, subsection (a) shall not apply if the replacement property or stock is acquired from a related person. The preceding sentence shall not apply to the extent that the related person acquired the replacement property or stock from an unrelated person during the period applicable under subsection (a)(2)(B). (2) Taxpayers to which subsection appliesThis subsection shall apply to—(A) a C corporation, (B) a partnership in which 1 or more C corporations own, directly or indirectly (determined in accordance with section 707(b)(3)), more than 50 percent of the capital interest, or profits interest, in such partnership at the time of the involuntary conversion, and (C) any other taxpayer if, with respect to property which is involuntarily converted during the taxable year, the aggregate of the amount of realized gain on such property on which there is realized gain exceeds $100,000. In the case of a partnership, subparagraph (C) shall apply with respect to the partnership and with respect to each partner. A similar rule shall apply in the case of an S corporation and its shareholders. (3) Related personFor purposes of this subsection, a person is related to another person if the person bears a relationship to the other person described in section 267(b) or 707(b)(1). (j) Sales or exchanges under certain hazard mitigation programsFor purposes of this subtitle, if property is sold or otherwise transferred to the Federal Government, a State or local government, or an Indian tribal government to implement hazard mitigation under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (as in effect on the date of the enactment of this subsection) or the National Flood Insurance Act (as in effect on such date), such sale or transfer shall be treated as an involuntary conversion to which this section applies. (k) Cross references(1) For determination of the period for which the taxpayer has held property involuntarily converted, see section 1223. (2) For treatment of gains from involuntary conversions as capital gains in certain cases, see section 1231(a). (3) For exclusion from gross income of gain from involuntary conversion of principal residence, see section 121.

26 U.S.C. § 1035 Certain exchanges of insurance policies

(a) General rulesNo gain or loss shall be recognized on the exchange of—(1) a contract of life insurance for another contract of life insurance or for an endowment or annuity contract or for a qualified long-term care insurance contract; (2) a contract of endowment insurance (A) for another contract of endowment insurance which provides for regular payments beginning at a date not later than the date payments would have begun under the contract exchanged, or (B) for an annuity contract, or (C) for a qualified long-term care insurance contract; (3) an annuity contract for an annuity contract or for a qualified long-term care insurance contract; or (4) a qualified long-term care insurance contract for a qualified long-term care insurance contract. (b) DefinitionsFor the purpose of this section—(1) Endowment contractA contract of endowment insurance is a contract with an insurance company which depends in part on the life expectancy of the insured, but which may be payable in full in a single payment during his life. (2) Annuity contractAn annuity contract is a contract to which paragraph (1) applies but which may be payable during the life of the annuitant only in installments. For purposes of the preceding sentence, a contract shall not fail to be treated as an annuity contract solely because a qualified long-term care insurance contract is a part of or a rider on such contract. (3) Life insurance contractA contract of life insurance is a contract to which paragraph (1) applies but which is not ordinarily payable in full during the life of the insured. For purposes of the preceding sentence, a contract shall not fail to be treated as a life insurance contract solely because a qualified long-term care insurance contract is a part of or a rider on such contract. (c) Exchanges involving foreign personsTo the extent provided in regulations, subsection (a) shall not apply to any exchange having the effect of transferring property to any person other than a United States person. (d) Cross references(1) For rules relating to recognition of gain or loss where an exchange is not solely in kind, see subsections (b) and (c) of section 1031. (2) For rules relating to the basis of property acquired in an exchange described in subsection (a), see subsection (d) of section 1031.

26 U.S.C. § 1036 Stock for stock of same corporation

(a) General ruleNo gain or loss shall be recognized if common stock in a corporation is exchanged solely for common stock in the same corporation, or if preferred stock in a corporation is exchanged solely for preferred stock in the same corporation. (b) Nonqualified preferred stock not treated as stockFor purposes of this section, nonqualified preferred stock (as defined in section 351(g)(2)) shall be treated as property other than stock. (c) Cross references(1) For rules relating to recognition of gain or loss where an exchange is not solely in kind, see subsections (b) and (c) of section 1031. (2) For rules relating to the basis of property acquired in an exchange described in subsection (a), see subsection (d) of section 1031.

26 U.S.C. § 1037 Certain exchanges of United States obligations

(a) General ruleWhen so provided by regulations promulgated by the Secretary in connection with the issue of obligations of the United States, no gain or loss shall be recognized on the surrender to the United States of obligations of the United States issued under chapter 31 of title 31 in exchange solely for other obligations issued under such chapter. (b) Application of original issue discount rules(1) Exchanges involving obligations issued at a discountIn any case in which gain has been realized but not recognized because of the provisions of subsection (a) (or so much of section 1031(b) as relates to subsection (a) of this section), to the extent such gain is later recognized by reason of a disposition or redemption of an obligation received in an exchange subject to such provisions, the first sentence of section 1271(c)(2) 11 See References in Text note below. shall apply to such gain as though the obligation disposed of or redeemed were the obligation surrendered to the Government in the exchange rather than the obligation actually disposed of or redeemed. For purposes of this paragraph and subpart A of part V of subchapter P, if the obligation surrendered in the exchange is a nontransferable obligation described in subsection (a) or (c) of section 454—(A) the aggregate amount considered, with respect to the obligation surrendered, as ordinary income shall not exceed the difference between the issue price and the stated redemption price which applies at the time of the exchange, and (B) the issue price of the obligation received in the exchange shall be considered to be the stated redemption price of the obligation surrendered in the exchange, increased by the amount of other consideration (if any) paid to the United States as a part of the exchange. (2) Exchanges of transferable obligations issued at not less than parIn any case in which subsection (a) (or so much of section 1031(b) or (c) as relates to subsection (a) of this section) has applied to the exchange of a transferable obligation which was issued at not less than par for another transferable obligation, the issue price of the obligation received from the Government in the exchange shall be considered for purposes of applying subpart A of part V of subchapter P to be the same as the issue price of the obligation surrendered to the Government in the exchange, increased by the amount of other consideration (if any) paid to the United States as a part of the exchange. (c) Cross references(1) For rules relating to the recognition of gain or loss in a case where subsection (a) would apply except for the fact that the exchange was not made solely for other obligations of the United States, see subsections (b) and (c) of section 1031. (2) For rules relating to the basis of obligations of the United States acquired in an exchange for other obligations described in subsection (a), see subsection (d) of section 1031.

26 U.S.C. § 1038 Certain reacquisitions of real property

(a) General ruleIf—(1) a sale of real property gives rise to indebtedness to the seller which is secured by the real property sold, and (2) the seller of such property reacquires such property in partial or full satisfaction of such indebtedness, then, except as provided in subsections (b) and (d), no gain or loss shall result to the seller from such reacquisition, and no debt shall become worthless or partially worthless as a result of such reacquisition. (b) Amount of gain resulting(1) In generalIn the case of a reacquisition of real property to which subsection (a) applies, gain shall result from such reacquisition to the extent that—(A) the amount of money and the fair market value of other property (other than obligations of the purchaser) received, prior to such reacquisition, with respect to the sale of such property, exceeds (B) the amount of the gain on the sale of such property returned as income for periods prior to such reacquisition. (2) LimitationThe amount of gain determined under paragraph (1) resulting from a reacquisition during any taxable year beginning after the date of the enactment of this section shall not exceed the amount by which the price at which the real property was sold exceeded its adjusted basis, reduced by the sum of—(A) the amount of the gain on the sale of such property returned as income for periods prior to the reacquisition of such property, and (B) the amount of money and the fair market value of other property (other than obligations of the purchaser received with respect to the sale of such property) paid or transferred by the seller in connection with the reacquisition of such property. For purposes of this paragraph, the price at which real property is sold is the gross sales price reduced by the selling commissions, legal fees, and other expenses incident to the sale of such property which are properly taken into account in determining gain or loss on such sale. (3) Gain recognizedExcept as provided in this section, the gain determined under this subsection resulting from a reacquisition to which subsection (a) applies shall be recognized, notwithstanding any other provision of this subtitle. (c) Basis of reacquired real propertyIf subsection (a) applies to the reacquisition of any real property, the basis of such property upon such reacquisition shall be the adjusted basis of the indebtedness to the seller secured by such property (determined as of the date of reacquisition), increased by the sum of—(1) the amount of the gain determined under subsection (b) resulting from such reacquisition, and (2) the amount described in subsection (b)(2)(B). If any indebtedness to the seller secured by such property is not discharged upon the reacquisition of such property, the basis of such indebtedness shall be zero. (d) Indebtedness treated as worthless prior to reacquisitionIf, prior to a reacquisition of real property to which subsection (a) applies, the seller has treated indebtedness secured by such property as having become worthless or partially worthless—(1) such seller shall be considered as receiving, upon the reacquisition of such property, an amount equal to the amount of such indebtedness treated by him as having become worthless, and (2) the adjusted basis of such indebtedness shall be increased (as of the date of reacquisition) by an amount equal to the amount so considered as received by such seller. (e) Principal residencesIf—(1) subsection (a) applies to a reacquisition of real property with respect to the sale of which gain was not recognized under section 121 (relating to gain on sale of principal residence); and (2) within 1 year after the date of the reacquisition of such property by the seller, such property is resold by him, then, under regulations prescribed by the Secretary, subsections (b), (c), and (d) of this section shall not apply to the reacquisition of such property and, for purposes of applying section 121, the resale of such property shall be treated as a part of the transaction constituting the original sale of such property. [(f) Repealed. Pub. L. 104–188, title I, § 1616(b)(12), Aug. 20, 1996, 110 Stat. 1857] (g) Acquisition by estate, etc., of sellerUnder regulations prescribed by the Secretary, if an installment obligation is indebtedness to the seller which is described in subsection (a), and if such obligation is, in the hands of the taxpayer, an obligation with respect to which section 691(a)(4)(B) applies, then—(1) for purposes of subsection (a), acquisition of real property by the taxpayer shall be treated as reacquisition by the seller, and (2) the basis of the real property acquired by the taxpayer shall be increased by an amount equal to the deduction under section 691(c) which would (but for this subsection) have been allowable to the taxpayer with respect to the gain on the exchange of the obligation for the real property.

26 U.S.C. § 1040 Transfer of certain farm, etc., real property

(a) General ruleIf the executor of the estate of any decedent transfers to a qualified heir (within the meaning of section 2032A(e)(1)) any property with respect to which an election was made under section 2032A, then gain on such transfer shall be recognized to the estate only to the extent that, on the date of such transfer, the fair market value of such property exceeds the value of such property for purposes of chapter 11 (determined without regard to section 2032A). (b) Similar rule for certain trustsTo the extent provided in regulations prescribed by the Secretary, a rule similar to the rule provided in subsection (a) shall apply where the trustee of a trust (any portion of which is included in the gross estate of the decedent) transfers property with respect to which an election was made under section 2032A. (c) Basis of property acquired in transfer described in subsection (a) or (b)The basis of property acquired in a transfer with respect to which gain realized is not recognized by reason of subsection (a) or (b) shall be the basis of such property immediately before the transfer increased by the amount of the gain recognized to the estate or trust on the transfer.

26 U.S.C. § 1041 Transfers of property between spouses or incident to divorce

(a) General ruleNo gain or loss shall be recognized on a transfer of property from an individual to (or in trust for the benefit of)—(1) a spouse, or (2) a former spouse, but only if the transfer is incident to the divorce. (b) Transfer treated as gift; transferee has transferor’s basisIn the case of any transfer of property described in subsection (a)—(1) for purposes of this subtitle, the property shall be treated as acquired by the transferee by gift, and (2) the basis of the transferee in the property shall be the adjusted basis of the transferor. (c) Incident to divorceFor purposes of subsection (a)(2), a transfer of property is incident to the divorce if such transfer—(1) occurs within 1 year after the date on which the marriage ceases, or (2) is related to the cessation of the marriage. (d) Special rule where spouse is nonresident alienSubsection (a) shall not apply if the spouse (or former spouse) of the individual making the transfer is a nonresident alien. (e) Transfers in trust where liability exceeds basisSubsection (a) shall not apply to the transfer of property in trust to the extent that—(1) the sum of the amount of the liabilities assumed, plus the amount of the liabilities to which the property is subject, exceeds (2) the total of the adjusted basis of the property transferred. Proper adjustment shall be made under subsection (b) in the basis of the transferee in such property to take into account gain recognized by reason of the preceding sentence.

26 U.S.C. § 1042 Sales of stock to employee stock ownership plans or certain cooperatives

(a) Nonrecognition of gainIf—(1) the taxpayer or executor elects in such form as the Secretary may prescribe the application of this section with respect to any sale of qualified securities, (2) the taxpayer purchases qualified replacement property within the replacement period, and (3) the requirements of subsection (b) are met with respect to such sale, then the gain (if any) on such sale which would be recognized as long-term capital gain shall be recognized only to the extent that the amount realized on such sale exceeds the cost to the taxpayer of such qualified replacement property. (b) Requirements to qualify for nonrecognitionA sale of qualified securities meets the requirements of this subsection if—(1) Sale to employee organizationsThe qualified securities are sold to—(A) an employee stock ownership plan (as defined in section 4975(e)(7)), or (B) an eligible worker-owned cooperative. (2) Plan must hold 30 percent of stock after saleThe plan or cooperative referred to in paragraph (1) owns (after application of section 318(a)(4)), immediately after the sale, at least 30 percent of—(A) each class of outstanding stock of the corporation (other than stock described in section 1504(a)(4)) which issued the qualified securities, or (B) the total value of all outstanding stock of the corporation (other than stock described in section 1504(a)(4)). (3) Written statement required(A) In generalThe taxpayer files with the Secretary the written statement described in subparagraph (B). (B) StatementA statement is described in this subparagraph if it is a verified written statement of—(i) the employer whose employees are covered by the plan described in paragraph (1), or (ii) any authorized officer of the cooperative described in paragraph (l),11 So in original. Probably should be “paragraph (1),”. consenting to the application of sections 4978 and 4979A with respect to such employer or cooperative. (4) 3-year holding periodThe taxpayer’s holding period with respect to the qualified securities is at least 3 years (determined as of the time of the sale). (c) Definitions; special rulesFor purposes of this section—(1) Qualified securitiesThe term “qualified securities” means employer securities (as defined in section 409(l)) which—(A) are issued by a domestic C corporation that has no stock outstanding that is readily tradable on an established securities market, and (B) were not received by the taxpayer in—(i) a distribution from a plan described in section 401(a), or (ii) a transfer pursuant to an option or other right to acquire stock to which section 83, 422, or 423 applied (or to which section 422 or 424 (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990) applied). (2) Eligible worker-owned cooperativeThe term “eligible worker-owned cooperative” means any organization—(A) to which part I of subchapter T applies, (B) a majority of the membership of which is composed of employees of such organization, (C) a majority of the voting stock of which is owned by members, (D) a majority of the board of directors of which is elected by the members on the basis of 1 person 1 vote, and (E) a majority of the allocated earnings and losses of which are allocated to members on the basis of—(i) patronage, (ii) capital contributions, or (iii) some combination of clauses (i) and (ii). (3) Replacement periodThe term “replacement period” means the period which begins 3 months before the date on which the sale of qualified securities occurs and which ends 12 months after the date of such sale. (4) Qualified replacement property(A) In generalThe term “qualified replacement property” means any security issued by a domestic operating corporation which—(i) did not, for the taxable year preceding the taxable year in which such security was purchased, have passive investment income (as defined in section 1362(d)(3)(C)) in excess of 25 percent of the gross receipts of such corporation for such preceding taxable year, and (ii) is not the corporation which issued the qualified securities which such security is replacing or a member of the same controlled group of corporations (within the meaning of section 1563(a)(1)) as such corporation. For purposes of clause (i), income which is described in section 954(c)(3) (as in effect immediately before the Tax Reform Act of 1986) shall not be treated as passive investment income. (B) Operating corporationFor purposes of this paragraph—(i) In generalThe term “operating corporation” means a corporation more than 50 percent of the assets of which were, at the time the security was purchased or before the close of the replacement period, used in the active conduct of the trade or business. (ii) Financial institutions and insurance companiesThe term “operating corporation” shall include—(I) any financial institution described in section 581, and (II) an insurance company subject to tax under subchapter L. (C) Controlling and controlled corporations treated as 1 corporation(i) In generalFor purposes of applying this paragraph, if—(I) the corporation issuing the security owns stock representing control of 1 or more other corporations, (II) 1 or more other corporations own stock representing control of the corporation issuing the security, or (III) both, then all such corporations shall be treated as 1 corporation. (ii) ControlFor purposes of clause (i), the term “control” has the meaning given such term by section 304(c). In determining control, there shall be disregarded any qualified replacement property of the taxpayer with respect to the section 1042 sale being tested. (D) Security definedFor purposes of this paragraph, the term “security” has the meaning given such term by section 165(g)(2), except that such term shall not include any security issued by a government or political subdivision thereof. (5) Securities sold by underwriterNo sale of securities by an underwriter to an employee stock ownership plan or eligible worker-owned cooperative in the ordinary course of his trade or business as an underwriter, whether or not guaranteed, shall be treated as a sale for purposes of subsection (a). (6) Time for filing electionAn election under subsection (a) shall be filed not later than the last day prescribed by law (including extensions thereof) for filing the return of tax imposed by this chapter for the taxable year in which the sale occurs. (7) Section not to apply to gain of C corporationSubsection (a) shall not apply to any gain on the sale of any qualified securities which is includible in the gross income of any C corporation. (d) Basis of qualified replacement propertyThe basis of the taxpayer in qualified replacement property purchased by the taxpayer during the replacement period shall be reduced by the amount of gain not recognized by reason of such purchase and the application of subsection (a). If more than one item of qualified replacement property is purchased, the basis of each of such items shall be reduced by an amount determined by multiplying the total gain not recognized by reason of such purchase and the application of subsection (a) by a fraction—(1) the numerator of which is the cost of such item of property, and (2) the denominator of which is the total cost of all such items of property. Any reduction in basis under this subsection shall not be taken into account for purposes of section 1278(a)(2)(A)(ii) (relating to definition of market discount). (e) Recapture of gain on disposition of qualified replacement property(1) In generalIf a taxpayer disposes of any qualified replacement property, then, notwithstanding any other provision of this title, gain (if any) shall be recognized to the extent of the gain which was not recognized under subsection (a) by reason of the acquisition by such taxpayer of such qualified replacement property. (2) Special rule for corporations controlled by the taxpayerIf—(A) a corporation issuing qualified replacement property disposes of a substantial portion of its assets other than in the ordinary course of its trade or business, and (B) any taxpayer owning stock representing control (within the meaning of section 304(c)) of such corporation at the time of such disposition holds any qualified replacement property of such corporation at such time, then the taxpayer shall be treated as having disposed of such qualified replacement property at such time. (3) Recapture not to apply in certain casesParagraph (1) shall not apply to any transfer of qualified replacement property—(A) in any reorganization (within the meaning of section 368) unless the person making the election under subsection (a)(1) owns stock representing control in the acquiring or acquired corporation and such property is substituted basis property in the hands of the transferee, (B) by reason of the death of the person making such election, (C) by gift, or (D) in any transaction to which section 1042(a) applies. (f) Statute of limitationsIf any gain is realized by the taxpayer on the sale or exchange of any qualified securities and there is in effect an election under subsection (a) with respect to such gain, then—(1) the statutory period for the assessment of any deficiency with respect to such gain shall not expire before the expiration of 3 years from the date the Secretary is notified by the taxpayer (in such manner as the Secretary may by regulations prescribe) of—(A) the taxpayer’s cost of purchasing qualified replacement property which the taxpayer claims results in nonrecognition of any part of such gain, (B) the taxpayer’s intention not to purchase qualified replacement property within the replacement period, or (C) a failure to make such purchase within the replacement period, and (2) such deficiency may be assessed before the expiration of such 3-year period notwithstanding the provisions of any other law or rule of law which would otherwise prevent such assessment. (g) Application of section to sales of stock in agricultural refiners and processors to eligible farm cooperatives(1) In generalThis section shall apply to the sale of stock of a qualified refiner or processor to an eligible farmers’ cooperative. (2) Qualified refiner or processorFor purposes of this subsection, the term “qualified refiner or processor” means a domestic corporation—(A) substantially all of the activities of which consist of the active conduct of the trade or business of refining or processing agricultural or horticultural products, and (B) which, during the 1-year period ending on the date of the sale, purchases more than one-half of such products to be refined or processed from—(i) farmers who make up the eligible farmers’ cooperative which is purchasing stock in the corporation in a transaction to which this subsection is to apply, or (ii) such cooperative. (3) Eligible farmers’ cooperativeFor purposes of this section, the term “eligible farmers’ cooperative” means an organization to which part I of subchapter T applies and which is engaged in the marketing of agricultural or horticultural products. (4) Special rulesIn applying this section to a sale to which paragraph (1) applies—(A) the eligible farmers’ cooperative shall be treated in the same manner as a cooperative described in subsection (b)(1)(B), (B) subsection (b)(2) shall be applied by substituting “100 percent” for “30 percent” each place it appears, (C) the determination as to whether any stock in the domestic corporation is a qualified security shall be made without regard to whether the stock is an employer security or to subsection (c)(1)(A), and (D) paragraphs (2)(D) and (7) of subsection (c) shall not apply.

26 U.S.C. § 1043 Sale of property to comply with conflict-of-interest requirements

(a) Nonrecognition of gainIf an eligible person sells any property pursuant to a certificate of divestiture, at the election of the taxpayer, gain from such sale shall be recognized only to the extent that the amount realized on such sale exceeds the cost (to the extent not previously taken into account under this subsection) of any permitted property purchased by the taxpayer during the 60-day period beginning on the date of such sale. (b) DefinitionsFor purposes of this section—(1) Eligible personThe term “eligible person” means—(A) an officer or employee of the executive branch, or a judicial officer, of the Federal Government, but does not mean a special Government employee as defined in section 202 of title 18, United States Code, and (B) any spouse or minor or dependent child whose ownership of any property is attributable under any statute, regulation, rule, judicial canon, or executive order referred to in paragraph (2) to a person referred to in subparagraph (A). (2) Certificate of divestitureThe term “certificate of divestiture” means any written determination—(A) that states that divestiture of specific property is reasonably necessary to comply with any Federal conflict of interest statute, regulation, rule, judicial canon, or executive order (including section 208 of title 18, United States Code), or requested by a congressional committee as a condition of confirmation, (B) that has been issued by the President or the Director of the Office of Government Ethics, in the case of executive branch officers or employees, or by the Judicial Conference of the United States (or its designee), in the case of judicial officers, and (C) that identifies the specific property to be divested. (3) Permitted propertyThe term “permitted property” means any obligation of the United States or any diversified investment fund approved by regulations issued by the Office of Government Ethics. (4) PurchaseThe taxpayer shall be considered to have purchased any permitted property if, but for subsection (c), the unadjusted basis of such property would be its cost within the meaning of section 1012. (5) Special rule for trustsFor purposes of this section, the trustee of a trust shall be treated as an eligible person with respect to property which is held in the trust if—(A) any person referred to in paragraph (1)(A) has a beneficial interest in the principal or income of the trust, or (B) any person referred to in paragraph (1)(B) has a beneficial interest in the principal or income of the trust and such interest is attributable under any statute, regulation, rule, judicial canon, or executive order referred to in paragraph (2) to a person referred to in paragraph (1)(A). (6) Judicial officerThe term “judicial officer” means the Chief Justice of the United States, the Associate Justices of the Supreme Court, and the judges of the United States courts of appeals, United States district courts, including the district courts in Guam, the Northern Mariana Islands, and the Virgin Islands, Court of Appeals for the Federal Circuit, Court of International Trade, Tax Court, Court of Federal Claims, Court of Appeals for Veterans Claims, United States Court of Appeals for the Armed Forces, and any court created by Act of Congress, the judges of which are entitled to hold office during good behavior. (c) Basis adjustmentsIf gain from the sale of any property is not recognized by reason of subsection (a), such gain shall be applied to reduce (in the order acquired) the basis for determining gain or loss of any permitted property which is purchased by the taxpayer during the 60-day period described in subsection (a).

26 U.S.C. § 1045 Rollover of gain from qualified small business stock to another qualified small business stock

(a) Nonrecognition of gainIn the case of any sale of qualified small business stock held by a taxpayer other than a corporation for more than 6 months and with respect to which such taxpayer elects the application of this section, gain from such sale shall be recognized only to the extent that the amount realized on such sale exceeds—(1) the cost of any qualified small business stock purchased by the taxpayer during the 60-day period beginning on the date of such sale, reduced by (2) any portion of such cost previously taken into account under this section. This section shall not apply to any gain which is treated as ordinary income for purposes of this title. (b) Definitions and special rulesFor purposes of this section—(1) Qualified small business stockThe term “qualified small business stock” has the meaning given such term by section 1202(c). (2) PurchaseA taxpayer shall be treated as having purchased any property if, but for paragraph (3), the unadjusted basis of such property in the hands of the taxpayer would be its cost (within the meaning of section 1012). (3) Basis adjustmentsIf gain from any sale is not recognized by reason of subsection (a), such gain shall be applied to reduce (in the order acquired) the basis for determining gain or loss of any qualified small business stock which is purchased by the taxpayer during the 60-day period described in subsection (a). (4) Holding periodFor purposes of determining whether the nonrecognition of gain under subsection (a) applies to stock which is sold—(A) the taxpayer’s holding period for such stock and the stock referred to in subsection (a)(1) shall be determined without regard to section 1223, and (B) only the first 6 months of the taxpayer’s holding period for the stock referred to in subsection (a)(1) shall be taken into account for purposes of applying section 1202(c)(2). (5) Certain rules to applyRules similar to the rules of subsections (f), (g), (h), (i), (j), and (k) of section 1202 shall apply.

26 U.S.C. § 1011 Adjusted basis for determining gain or loss

(a) General ruleThe adjusted basis for determining the gain or loss from the sale or other disposition of property, whenever acquired, shall be the basis (determined under section 1012 or other applicable sections of this subchapter and subchapters C (relating to corporate distributions and adjustments), K (relating to partners and partnerships), and P (relating to capital gains and losses)), adjusted as provided in section 1016. (b) Bargain sale to a charitable organizationIf a deduction is allowable under section 170 (relating to charitable contributions) by reason of a sale, then the adjusted basis for determining the gain from such sale shall be that portion of the adjusted basis which bears the same ratio to the adjusted basis as the amount realized bears to the fair market value of the property.

26 U.S.C. § 1012 Basis of property—cost

(a) In generalThe basis of property shall be the cost of such property, except as otherwise provided in this subchapter and subchapters C (relating to corporate distributions and adjustments), K (relating to partners and partnerships), and P (relating to capital gains and losses). (b) Special rule for apportioned real estate taxesThe cost of real property shall not include any amount in respect of real property taxes which are treated under section 164(d) as imposed on the taxpayer. (c) Determinations by account(1) In generalIn the case of the sale, exchange, or other disposition of a specified security on or after the applicable date, the conventions prescribed by regulations under this section shall be applied on an account by account basis. (2) Application to certain regulated investment companies(A) In generalExcept as provided in subparagraph (B), any stock for which an average basis method is permissible under this section which is acquired before January 1, 2012, shall be treated as a separate account from any such stock acquired on or after such date. (B) Election for treatment as single accountIf a regulated investment company described in subparagraph (A) elects to have this subparagraph apply with respect to one or more of its stockholders—(i) subparagraph (A) shall not apply with respect to any stock in such regulated investment company held by such stockholders, and (ii) all stock in such regulated investment company which is held by such stockholders shall be treated as covered securities described in section 6045(g)(3) without regard to the date of the acquisition of such stock. A rule similar to the rule of the preceding sentence shall apply with respect to a broker holding such stock as a nominee. (3) DefinitionsFor purposes of this section, the terms “specified security” and “applicable date” shall have the meaning given such terms in section 6045(g). (d) Average basis for stock acquired pursuant to a dividend reinvestment plan(1) In generalIn the case of any stock acquired after December 31, 2011, in connection with a dividend reinvestment plan, the basis of such stock while held as part of such plan shall be determined using one of the methods which may be used for determining the basis of stock in a regulated investment company. (2) Treatment after transferIn the case of the transfer to another account of stock to which paragraph (1) applies, such stock shall have a cost basis in such other account equal to its basis in the dividend reinvestment plan immediately before such transfer (properly adjusted for any fees or other charges taken into account in connection with such transfer). (3) Separate accounts; election for treatment as single account(A) In generalRules similar to the rules of subsection (c)(2) shall apply for purposes of this subsection. (B) Average basis methodNotwithstanding paragraph (1), in the case of an election under rules similar to the rules of subsection (c)(2)(B) with respect to stock held in connection with a dividend reinvestment plan, the average basis method is permissible with respect to all such stock without regard to the date of the acquisition of such stock. (4) Dividend reinvestment planFor purposes of this subsection—(A) In generalThe term “dividend reinvestment plan” means any arrangement under which dividends on any stock are reinvested in stock identical to the stock with respect to which the dividends are paid. (B) Initial stock acquisition treated as acquired in connection with planStock shall be treated as acquired in connection with a dividend reinvestment plan if such stock is acquired pursuant to such plan or if the dividends paid on such stock are subject to such plan.

26 U.S.C. § 1013 Basis of property included in inventory

If the property should have been included in the last inventory, the basis shall be the last inventory value thereof.

26 U.S.C. § 1014 Basis of property acquired from a decedent

(a) In generalExcept as otherwise provided in this section, the basis of property in the hands of a person acquiring the property from a decedent or to whom the property passed from a decedent shall, if not sold, exchanged, or otherwise disposed of before the decedent’s death by such person, be—(1) the fair market value of the property at the date of the decedent’s death, (2) in the case of an election under section 2032, its value at the applicable valuation date prescribed by such section, (3) in the case of an election under section 2032A, its value determined under such section, or (4) to the extent of the applicability of the exclusion described in section 2031(c), the basis in the hands of the decedent. (b) Property acquired from the decedentFor purposes of subsection (a), the following property shall be considered to have been acquired from or to have passed from the decedent:(1) Property acquired by bequest, devise, or inheritance, or by the decedent’s estate from the decedent; (2) Property transferred by the decedent during his lifetime in trust to pay the income for life to or on the order or direction of the decedent, with the right reserved to the decedent at all times before his death to revoke the trust; (3) In the case of decedents dying after December 31, 1951, property transferred by the decedent during his lifetime in trust to pay the income for life to or on the order or direction of the decedent with the right reserved to the decedent at all times before his death to make any change in the enjoyment thereof through the exercise of a power to alter, amend, or terminate the trust; (4) Property passing without full and adequate consideration under a general power of appointment exercised by the decedent by will; (5) In the case of decedents dying after August 26, 1937, and before January 1, 2005, property acquired by bequest, devise, or inheritance or by the decedent’s estate from the decedent, if the property consists of stock or securities of a foreign corporation, which with respect to its taxable year next preceding the date of the decedent’s death was, under the law applicable to such year, a foreign personal holding company. In such case, the basis shall be the fair market value of such property at the date of the decedent’s death or the basis in the hands of the decedent, whichever is lower; (6) In the case of decedents dying after December 31, 1947, property which represents the surviving spouse’s one-half share of community property held by the decedent and the surviving spouse under the community property laws of any State, or possession of the United States or any foreign country, if at least one-half of the whole of the community interest in such property was includible in determining the value of the decedent’s gross estate under chapter 11 of subtitle B (section 2001 and following, relating to estate tax) or section 811 of the Internal Revenue Code of 1939; [(7), (8) Repealed. Pub. L. 113–295, div. A, title II, § 221(a)(74)(B), Dec. 19, 2014, 128 Stat. 4049] (9) In the case of decedents dying after December 31, 1953, property acquired from the decedent by reason of death, form of ownership, or other conditions (including property acquired through the exercise or non-exercise of a power of appointment), if by reason thereof the property is required to be included in determining the value of the decedent’s gross estate under chapter 11 of subtitle B or under the Internal Revenue Code of 1939. In such case, if the property is acquired before the death of the decedent, the basis shall be the amount determined under subsection (a) reduced by the amount allowed to the taxpayer as deductions in computing taxable income under this subtitle or prior income tax laws for exhaustion, wear and tear, obsolescence, amortization, and depletion on such property before the death of the decedent. Such basis shall be applicable to the property commencing on the death of the decedent. This paragraph shall not apply to—(A) annuities described in section 72; (B) property to which paragraph (5) would apply if the property had been acquired by bequest; and (C) property described in any other paragraph of this subsection. (10) Property includible in the gross estate of the decedent under section 2044 (relating to certain property for which marital deduction was previously allowed). In any such case, the last 3 sentences of paragraph (9) shall apply as if such property were described in the first sentence of paragraph (9). (c) Property representing income in respect of a decedentThis section shall not apply to property which constitutes a right to receive an item of income in respect of a decedent under section 691. (d) Special rule with respect to DISC stockIf stock owned by a decedent in a DISC or former DISC (as defined in section 992(a)) acquires a new basis under subsection (a), such basis (determined before the application of this subsection) shall be reduced by the amount (if any) which would have been included in gross income under section 995(c) as a dividend if the decedent had lived and sold the stock at its fair market value on the estate tax valuation date. In computing the gain the decedent would have had if he had lived and sold the stock, his basis shall be determined without regard to the last sentence of section 996(e)(2) (relating to reductions of basis of DISC stock). For purposes of this subsection, the estate tax valuation date is the date of the decedent’s death or, in the case of an election under section 2032, the applicable valuation date prescribed by that section. (e) Appreciated property acquired by decedent by gift within 1 year of death(1) In generalIn the case of a decedent dying after December 31, 1981, if—(A) appreciated property was acquired by the decedent by gift during the 1-year period ending on the date of the decedent’s death, and (B) such property is acquired from the decedent by (or passes from the decedent to) the donor of such property (or the spouse of such donor), the basis of such property in the hands of such donor (or spouse) shall be the adjusted basis of such property in the hands of the decedent immediately before the death of the decedent. (2) DefinitionsFor purposes of paragraph (1)—(A) Appreciated propertyThe term “appreciated property” means any property if the fair market value of such property on the day it was transferred to the decedent by gift exceeds its adjusted basis. (B) Treatment of certain property sold by estateIn the case of any appreciated property described in subparagraph (A) of paragraph (1) sold by the estate of the decedent or by a trust of which the decedent was the grantor, rules similar to the rules of paragraph (1) shall apply to the extent the donor of such property (or the spouse of such donor) is entitled to the proceeds from such sale. (f) Basis must be consistent with estate tax returnFor purposes of this section—(1) In generalThe basis of any property to which subsection (a) applies shall not exceed—(A) in the case of property the final value of which has been determined for purposes of the tax imposed by chapter 11 on the estate of such decedent, such value, and (B) in the case of property not described in subparagraph (A) and with respect to which a statement has been furnished under section 6035(a) identifying the value of such property, such value. (2) ExceptionParagraph (1) shall only apply to any property whose inclusion in the decedent’s estate increased the liability for the tax imposed by chapter 11 (reduced by credits allowable against such tax) on such estate. (3) DeterminationFor purposes of paragraph (1), the basis of property has been determined for purposes of the tax imposed by chapter 11 if—(A) the value of such property is shown on a return under section 6018 and such value is not contested by the Secretary before the expiration of the time for assessing a tax under chapter 11, (B) in a case not described in subparagraph (A), the value is specified by the Secretary and such value is not timely contested by the executor of the estate, or (C) the value is determined by a court or pursuant to a settlement agreement with the Secretary. (4) RegulationsThe Secretary may by regulations provide exceptions to the application of this subsection.

26 U.S.C. § 1015 Basis of property acquired by gifts and transfers in trust

(a) Gifts after December 31, 1920If the property was acquired by gift after December 31, 1920, the basis shall be the same as it would be in the hands of the donor or the last preceding owner by whom it was not acquired by gift, except that if such basis (adjusted for the period before the date of the gift as provided in section 1016) is greater than the fair market value of the property at the time of the gift, then for the purpose of determining loss the basis shall be such fair market value. If the facts necessary to determine the basis in the hands of the donor or the last preceding owner are unknown to the donee, the Secretary shall, if possible, obtain such facts from such donor or last preceding owner, or any other person cognizant thereof. If the Secretary finds it impossible to obtain such facts, the basis in the hands of such donor or last preceding owner shall be the fair market value of such property as found by the Secretary as of the date or approximate date at which, according to the best information that the Secretary is able to obtain, such property was acquired by such donor or last preceding owner. (b) Transfer in trust after December 31, 1920If the property was acquired after December 31, 1920, by a transfer in trust (other than by a transfer in trust by a gift, bequest, or devise), the basis shall be the same as it would be in the hands of the grantor increased in the amount of gain or decreased in the amount of loss recognized to the grantor on such transfer under the law applicable to the year in which the transfer was made. (c) Gift or transfer in trust before January 1, 1921If the property was acquired by gift or transfer in trust on or before December 31, 1920, the basis shall be the fair market value of such property at the time of such acquisition. (d) Increased basis for gift tax paid(1) In generalIf—(A) the property is acquired by gift on or after September 2, 1958, the basis shall be the basis determined under subsection (a), increased (but not above the fair market value of the property at the time of the gift) by the amount of gift tax paid with respect to such gift, or (B) the property was acquired by gift before September 2, 1958, and has not been sold, exchanged, or otherwise disposed of before such date, the basis of the property shall be increased on such date by the amount of gift tax paid with respect to such gift, but such increase shall not exceed an amount equal to the amount by which the fair market value of the property at the time of the gift exceeded the basis of the property in the hands of the donor at the time of the gift. (2) Amount of tax paid with respect to giftFor purposes of paragraph (1), the amount of gift tax paid with respect to any gift is an amount which bears the same ratio to the amount of gift tax paid under chapter 12 with respect to all gifts made by the donor for the calendar year (or preceding calendar period) in which such gift is made as the amount of such gift bears to the taxable gifts (as defined in section 2503(a) but computed without the deduction allowed by section 2521) made by the donor during such calendar year or period. For purposes of the preceding sentence, the amount of any gift shall be the amount included with respect to such gift in determining (for the purposes of section 2503(a)) the total amount of gifts made during the calendar year or period, reduced by the amount of any deduction allowed with respect to such gift under section 2522 (relating to charitable deduction) or under section 2523 (relating to marital deduction). (3) Gifts treated as made one-half by each spouseFor purposes of paragraph (1), where the donor and his spouse elected, under section 2513 to have the gift considered as made one-half by each, the amount of gift tax paid with respect to such gift under chapter 12 shall be the sum of the amounts of tax paid with respect to each half of such gift (computed in the manner provided in paragraph (2)). (4) Treatment as adjustment to basisFor purposes of section 1016(b), an increase in basis under paragraph (1) shall be treated as an adjustment under section 1016(a). (5) Application to gifts before 1955With respect to any property acquired by gift before 1955, references in this subsection to any provision of this title shall be deemed to refer to the corresponding provision of the Internal Revenue Code of 1939 or prior revenue laws which was effective for the year in which such gift was made. (6) Special rule for gifts made after December 31, 1976(A) In generalIn the case of any gift made after December 31, 1976, the increase in basis provided by this subsection with respect to any gift for the gift tax paid under chapter 12 shall be an amount (not in excess of the amount of tax so paid) which bears the same ratio to the amount of tax so paid as—(i) the net appreciation in value of the gift, bears to (ii) the amount of the gift. (B) Net appreciationFor purposes of paragraph (1), the net appreciation in value of any gift is the amount by which the fair market value of the gift exceeds the donor’s adjusted basis immediately before the gift. (e) Gifts between spousesIn the case of any property acquired by gift in a transfer described in section 1041(a), the basis of such property in the hands of the transferee shall be determined under section 1041(b)(2) and not this section.

26 U.S.C. § 1016 Adjustments to basis

(a) General ruleProper adjustment in respect of the property shall in all cases be made—(1) for expenditures, receipts, losses, or other items, properly chargeable to capital account, but no such adjustment shall be made—(A) for—(i) taxes or other carrying charges described in section 266; or (ii) expenditures described in section 173 (relating to circulation expenditures), for which deductions have been taken by the taxpayer in determining taxable income for the taxable year or prior taxable years; or (B) for mortality, expense, or other reasonable charges incurred under an annuity or life insurance contract; (2) in respect of any period since February 28, 1913, for exhaustion, wear and tear, obsolescence, amortization, and depletion, to the extent of the amount—(A) allowed as deductions in computing taxable income under this subtitle or prior income tax laws, and (B) resulting (by reason of the deductions so allowed) in a reduction for any taxable year of the taxpayer’s taxes under this subtitle (other than chapter 2, relating to tax on self-employment income), or prior income, war-profits, or excess-profits tax laws, but not less than the amount allowable under this subtitle or prior income tax laws. Where no method has been adopted under section 167 (relating to depreciation deduction), the amount allowable shall be determined under the straight line method. Subparagraph (B) of this paragraph shall not apply in respect of any period since February 28, 1913, and before January 1, 1952, unless an election has been made under section 1020 (as in effect before the date of the enactment of the Tax Reform Act of 1976). Where for any taxable year before the taxable year 1932 the depletion allowance was based on discovery value or a percentage of income, then the adjustment for depletion for such year shall be based on the depletion which would have been allowable for such year if computed without reference to discovery value or a percentage of income; (3) in respect of any period—(A) before March 1, 1913, (B) since February 28, 1913, during which such property was held by a person or an organization not subject to income taxation under this chapter or prior income tax laws, (C) since February 28, 1913, and before January 1, 1958, during which such property was held by a person subject to tax under part I of subchapter L (or the corresponding provisions of prior income tax laws), to the extent that paragraph (2) does not apply, and (D) since February 28, 1913, during which such property was held by a person subject to tax under part II of subchapter L as in effect prior to its repeal by the Tax Reform Act of 1986 (or the corresponding provisions of prior income tax laws), to the extent that paragraph (2) does not apply, for exhaustion, wear and tear, obsolescence, amortization, and depletion, to the extent sustained; (4) in the case of stock (to the extent not provided for in the foregoing paragraphs) for the amount of distributions previously made which, under the law applicable to the year in which the distribution was made, either were tax-free or were applicable in reduction of basis (not including distributions made by a corporation which was classified as a personal service corporation under the provisions of the Revenue Act of 1918 (40 Stat. 1057), or the Revenue Act of 1921 (42 Stat. 227), out of its earnings or profits which were taxable in accordance with the provisions of section 218 of the Revenue Act of 1918 or 1921); (5) in the case of any bond (as defined in section 171(d)) the interest on which is wholly exempt from the tax imposed by this subtitle, to the extent of the amortizable bond premium disallowable as a deduction pursuant to section 171(a)(2), and in the case of any other bond (as defined in section 171(d)) to the extent of the deductions allowable pursuant to section 171(a)(1) (or the amount applied to reduce interest payments under section 171(e)(2)) with respect thereto; (6) in the case of any municipal bond (as defined in section 75(b)), to the extent provided in section 75(a)(2); (7) in the case of a residence the acquisition of which resulted, under section 1034 (as in effect on the day before the date of the enactment of the Taxpayer Relief Act of 1997), in the nonrecognition of any part of the gain realized on the sale, exchange, or involuntary conversion of another residence, to the extent provided in section 1034(e) (as so in effect); (8) in the case of property pledged to the Commodity Credit Corporation, to the extent of the amount received as a loan from the Commodity Credit Corporation and treated by the taxpayer as income for the year in which received pursuant to section 77, and to the extent of any deficiency on such loan with respect to which the taxpayer has been relieved from liability; (9) for amounts allowed as deductions as deferred expenses under section 616(b) (relating to certain expenditures in the development of mines) and resulting in a reduction of the taxpayer’s taxes under this subtitle, but not less than the amounts allowable under such section for the taxable year and prior years; [(10) Repealed. Pub. L. 94–455, title XIX, § 1901(b)(21)(G), Oct. 4, 1976, 90 Stat. 1798] (11) for deductions to the extent disallowed under section 268 (relating to sale of land with unharvested crops), notwithstanding the provisions of any other paragraph of this subsection; [(12) Repealed. Pub. L. 113–295, div. A, title II, § 221(a)(75), Dec. 19, 2014, 128 Stat. 4049] [(13) Repealed. Pub. L. 108–357, title IV, § 413(c)(19), Oct. 22, 2004, 118 Stat. 1509] (14) for amounts allowed as deductions under section 174 or 174A(c) and resulting in a reduction of the taxpayers’ taxes under this subtitle, but not less than the amounts allowable under such section for the taxable year and prior years; (15) for deductions to the extent disallowed under section 272 (relating to disposal of coal or domestic iron ore), notwithstanding the provisions of any other paragraph of this subsection; (16) in the case of any evidence of indebtedness referred to in section 811(b) (relating to amortization of premium and accrual of discount in the case of life insurance companies), to the extent of the adjustments required under section 811(b) (or the corresponding provisions of prior income tax laws) for the taxable year and all prior taxable years; (17) to the extent provided in section 1367 in the case of stock of, and indebtedness owed to, shareholders of an S corporation; (18) to the extent provided in section 961 in the case of stock in controlled foreign corporations (or foreign corporations which were controlled foreign corporations) and of property by reason of which a person is considered as owning such stock; (19) to the extent provided in section 50(c), in the case of expenditures with respect to which a credit has been allowed under section 38; (20) for amounts allowed as deductions under section 59(e) (relating to optional 10-year writeoff of certain tax preferences); (21) to the extent provided in section 1059 (relating to reduction in basis for extraordinary dividends); (22) in the case of qualified replacement property the acquisition of which resulted under section 1042 in the nonrecognition of any part of the gain realized on the sale or exchange of any property, to the extent provided in section 1042(d),11 So in original. The comma probably should be a semicolon. (23) in the case of property the acquisition of which resulted under section 1043, 1045, or 1397B in the nonrecognition of any part of the gain realized on the sale of other property, to the extent provided in section 1043(c), 1045(b)(3), or 1397B(b)(4), as the case may be,1 [(24) Repealed. Pub. L. 113–295, div. A, title II, § 221(a)(34)(G), Dec. 19, 2014, 128 Stat. 4042] [(25) Repealed. Pub. L. 113–295, div. A, title II, § 221(a)(2)(D), Dec. 19, 2014, 128 Stat. 4037] (26) to the extent provided in sections 23(g) and 137(e),1 [(27) Repealed. Pub. L. 115–141, div. U, title IV, § 401(d)(4)(B)(iv), Mar. 23, 2018, 132 Stat. 1209] (28) in the case of a facility with respect to which a credit was allowed under section 45F, to the extent provided in section 45F(f)(1),1 (29) in the case of railroad track with respect to which a credit was allowed under section 45G, to the extent provided in section 45G(e)(3),1 (30) to the extent provided in section 179B(c),1 (31) to the extent provided in section 179D(e),1 (32) to the extent provided in section 45L(e), in the case of amounts with respect to which a credit has been allowed under section 45L,1 (33) to the extent provided in section 25C(g), in the case of amounts with respect to which a credit has been allowed under section 25C,1 (34) to the extent provided in section 25D(f), in the case of amounts with respect to which a credit has been allowed under section 25D,1 (35) to the extent provided in section 30B(h)(4),1 (36) to the extent provided in section 30C(e)(1),1 (37) to the extent provided in section 30D(f)(1),1 and (38) to the extent provided in subsections (b)(2) and (c) of section 1400Z–2. (b) Substituted basisWhenever it appears that the basis of property in the hands of the taxpayer is a substituted basis, then the adjustments provided in subsection (a) shall be made after first making in respect of such substituted basis proper adjustments of a similar nature in respect of the period during which the property was held by the transferor, donor, or grantor, or during which the other property was held by the person for whom the basis is to be determined. A similar rule shall be applied in the case of a series of substituted bases. (c) Increase in basis of property on which additional estate tax is imposed(1) Tax imposed with respect to entire interestIf an additional estate tax is imposed under section 2032A(c)(1) with respect to any interest in property and the qualified heir makes an election under this subsection with respect to the imposition of such tax, the adjusted basis of such interest shall be increased by an amount equal to the excess of—(A) the fair market value of such interest on the date of the decedent’s death (or the alternate valuation date under section 2032, if the executor of the decedent’s estate elected the application of such section), over (B) the value of such interest determined under section 2032A(a). (2) Partial dispositions(A) In generalIn the case of any partial disposition for which an election under this subsection is made, the increase in basis under paragraph (1) shall be an amount—(i) which bears the same ratio to the increase which would be determined under paragraph (1) (without regard to this paragraph) with respect to the entire interest, as (ii) the amount of the tax imposed under section 2032A(c)(1) with respect to such disposition bears to the adjusted tax difference attributable to the entire interest (as determined under section 2032A(c)(2)(B)). (B) Partial dispositionFor purposes of subparagraph (A), the term “partial disposition” means any disposition or cessation to which subsection (c)(2)(D), (h)(1)(B), or (i)(1)(B) of section 2032A applies. (3) Time adjustment madeAny increase in basis under this subsection shall be deemed to have occurred immediately before the disposition or cessation resulting in the imposition of the tax under section 2032A(c)(1). (4) Special rule in the case of substituted propertyIf the tax under section 2032A(c)(1) is imposed with respect to qualified replacement property (as defined in section 2032A(h)(3)(B)) or qualified exchange property (as defined in section 2032A(i)(3)), the increase in basis under paragraph (1) shall be made by reference to the property involuntarily converted or exchanged (as the case may be). (5) Election(A) In generalAn election under this subsection shall be made at such time and in such manner as the Secretary shall by regulations prescribe. Such an election, once made, shall be irrevocable. (B) Interest on recaptured amountIf an election is made under this subsection with respect to any additional estate tax imposed under section 2032A(c)(1), for purposes of section 6601 (relating to interest on underpayments), the last date prescribed for payment of such tax shall be deemed to be the last date prescribed for payment of the tax imposed by section 2001 with respect to the estate of the decedent (as determined for purposes of section 6601). (d) Reduction in basis of automobile on which gas guzzler tax was imposedIf—(1) the taxpayer acquires any automobile with respect to which a tax was imposed by section 4064, and (2) the use of such automobile by the taxpayer begins not more than 1 year after the date of the first sale for ultimate use of such automobile, the basis of such automobile shall be reduced by the amount of the tax imposed by section 4064 with respect to such automobile. In the case of importation, if the date of entry or withdrawal from warehouse for consumption is later than the date of the first sale for ultimate use, such later date shall be substituted for the date of such first sale in the preceding sentence. (e) Cross referenceFor treatment of separate mineral interests as one property, see section 614.

26 U.S.C. § 1017 Discharge of indebtedness

(a) General ruleIf—(1) an amount is excluded from gross income under subsection (a) of section 108 (relating to discharge of indebtedness), and (2) under subsection (b)(2)(E), (b)(5), or (c)(1) of section 108, any portion of such amount is to be applied to reduce basis, then such portion shall be applied in reduction of the basis of any property held by the taxpayer at the beginning of the taxable year following the taxable year in which the discharge occurs. (b) Amount and properties determined under regulations(1) In generalThe amount of reduction to be applied under subsection (a) (not in excess of the portion referred to in subsection (a)), and the particular properties the bases of which are to be reduced, shall be determined under regulations prescribed by the Secretary. (2) Limitation in title 11 case or insolvencyIn the case of a discharge to which subparagraph (A) or (B) of section 108(a)(1) applies, the reduction in basis under subsection (a) of this section shall not exceed the excess of—(A) the aggregate of the bases of the property held by the taxpayer immediately after the discharge, over (B) the aggregate of the liabilities of the taxpayer immediately after the discharge. The preceding sentence shall not apply to any reduction in basis by reason of an election under section 108(b)(5). (3) Certain reductions may only be made in the basis of depreciable property(A) In generalAny amount which under subsection (b)(5) or (c)(1) of section 108 is to be applied to reduce basis shall be applied only to reduce the basis of depreciable property held by the taxpayer. (B) Depreciable propertyFor purposes of this section, the term “depreciable property” means any property of a character subject to the allowance for depreciation, but only if a basis reduction under subsection (a) will reduce the amount of depreciation or amortization which otherwise would be allowable for the period immediately following such reduction. (C) Special rule for partnership interestsFor purposes of this section, any interest of a partner in a partnership shall be treated as depreciable property to the extent of such partner’s proportionate interest in the depreciable property held by such partnership. The preceding sentence shall apply only if there is a corresponding reduction in the partnership’s basis in depreciable property with respect to such partner. (D) Special rule in case of affiliated groupFor purposes of this section, if—(i) a corporation holds stock in another corporation (hereinafter in this subparagraph referred to as the “subsidiary”), and (ii) such corporations are members of the same affiliated group which file a consolidated return under section 1501 for the taxable year in which the discharge occurs, then such stock shall be treated as depreciable property to the extent that such subsidiary consents to a corresponding reduction in the basis of its depreciable property. (E) Election to treat certain inventory as depreciable property(i) In generalAt the election of the taxpayer, for purposes of this section, the term “depreciable property” includes any real property which is described in section 1221(a)(1). (ii) ElectionAn election under clause (i) shall be made on the taxpayer’s return for the taxable year in which the discharge occurs or at such other time as may be permitted in regulations prescribed by the Secretary. Such an election, once made, may be revoked only with the consent of the Secretary. (F) Special rules for qualified real property business indebtednessIn the case of any amount which under section 108(c)(1) is to be applied to reduce basis—(i) depreciable property shall only include depreciable real property for purposes of subparagraphs (A) and (C), (ii) subparagraph (E) shall not apply, and (iii) in the case of property taken into account under section 108(c)(2)(B), the reduction with respect to such property shall be made as of the time immediately before disposition if earlier than the time under subsection (a). (4) Special rules for qualified farm indebtedness(A) In generalAny amount which under subsection (b)(2)(E) of section 108 is to be applied to reduce basis and which is attributable to an amount excluded under subsection (a)(1)(C) of section 108—(i) shall be applied only to reduce the basis of qualified property held by the taxpayer, and (ii) shall be applied to reduce the basis of qualified property in the following order:(I) First the basis of qualified property which is depreciable property. (II) Second the basis of qualified property which is land used or held for use in the trade or business of farming. (III) Then the basis of other qualified property. (B) Qualified propertyFor purposes of this paragraph, the term “qualified property” has the meaning given to such term by section 108(g)(3)(C). (C) Certain rules made applicableRules similar to the rules of subparagraphs (C), (D), and (E) of paragraph (3) shall apply for purposes of this paragraph and section 108(g). (c) Special rules(1) Reduction not to be made in exempt propertyIn the case of an amount excluded from gross income under section 108(a)(1)(A), no reduction in basis shall be made under this section in the basis of property which the debtor treats as exempt property under section 522 of title 11 of the United States Code. (2) Reductions in basis not treated as dispositionsFor purposes of this title, a reduction in basis under this section shall not be treated as a disposition. (d) Recapture of reductions(1) In generalFor purposes of sections 1245 and 1250—(A) any property the basis of which is reduced under this section and which is neither section 1245 property nor section 1250 property shall be treated as section 1245 property, and (B) any reduction under this section shall be treated as a deduction allowed for depreciation. (2) Special rule for section 1250For purposes of section 1250(b), the determination of what would have been the depreciation adjustments under the straight line method shall be made as if there had been no reduction under this section.

26 U.S.C. § 1019 Property on which lessee has made improvements

Neither the basis nor the adjusted basis of any portion of real property shall, in the case of the lessor of such property, be increased or diminished on account of income derived by the lessor in respect of such property and excludable from gross income under section 109 (relating to improvements by lessee on lessor’s property).

26 U.S.C. § 1021 Sale of annuities

In case of the sale of an annuity contract, the adjusted basis shall in no case be less than zero.

26 U.S.C. § 1023 Cross references

(1) For certain distributions by a corporation which are applied in reduction of basis of stock, see section 301(c)(2). (2) For basis in case of construction of new vessels, see chapter 533 of title 46, United States Code.

26 U.S.C. § 1001 Determination of amount of and recognition of gain or loss

(a) Computation of gain or lossThe gain from the sale or other disposition of property shall be the excess of the amount realized therefrom over the adjusted basis provided in section 1011 for determining gain, and the loss shall be the excess of the adjusted basis provided in such section for determining loss over the amount realized. (b) Amount realizedThe amount realized from the sale or other disposition of property shall be the sum of any money received plus the fair market value of the property (other than money) received. In determining the amount realized—(1) there shall not be taken into account any amount received as reimbursement for real property taxes which are treated under section 164(d) as imposed on the purchaser, and (2) there shall be taken into account amounts representing real property taxes which are treated under section 164(d) as imposed on the taxpayer if such taxes are to be paid by the purchaser. (c) Recognition of gain or lossExcept as otherwise provided in this subtitle, the entire amount of the gain or loss, determined under this section, on the sale or exchange of property shall be recognized. (d) Installment salesNothing in this section shall be construed to prevent (in the case of property sold under contract providing for payment in installments) the taxation of that portion of any installment payment representing gain or profit in the year in which such payment is received. (e) Certain term interests(1) In generalIn determining gain or loss from the sale or other disposition of a term interest in property, that portion of the adjusted basis of such interest which is determined pursuant to section 1014, 1015, or 1041 (to the extent that such adjusted basis is a portion of the entire adjusted basis of the property) shall be disregarded. (2) Term interest in property definedFor purposes of paragraph (1), the term “term interest in property” means—(A) a life interest in property, (B) an interest in property for a term of years, or (C) an income interest in a trust. (3) ExceptionParagraph (1) shall not apply to a sale or other disposition which is a part of a transaction in which the entire interest in property is transferred to any person or persons.

26 U.S.C. § 1052 Basis established by the Revenue Act of 1932 or 1934 or by the Internal Revenue Code of 1939

(a) Revenue Act of 1932If the property was acquired, after February 28, 1913, in any taxable year beginning before January 1, 1934, and the basis thereof, for purposes of the Revenue Act of 1932 was prescribed by section 113(a)(6), (7), or (9) of such Act (47 Stat. 199), then for purposes of this subtitle the basis shall be the same as the basis therein prescribed in the Revenue Act of 1932. (b) Revenue Act of 1934If the property was acquired, after February 28, 1913, in any taxable year beginning before January 1, 1936, and the basis thereof, for purposes of the Revenue Act of 1934, was prescribed by section 113(a)(6), (7), or (8) of such Act (48 Stat. 706), then for purposes of this subtitle the basis shall be the same as the basis therein prescribed in the Revenue Act of 1934. (c) Internal Revenue Code of 1939If the property was acquired, after February 28, 1913, in a transaction to which the Internal Revenue Code of 1939 applied, and the basis thereof, for purposes of the Internal Revenue Code of 1939, was prescribed by section 113(a)(6), (7), (8), (13), (15), (18), (19), or (23) of such code, then for purposes of this subtitle the basis shall be the same as the basis therein prescribed in the Internal Revenue Code of 1939.

26 U.S.C. § 1053 Property acquired before March 1, 1913

In the case of property acquired before March 1, 1913, if the basis otherwise determined under this subtitle, adjusted (for the period before March 1, 1913) as provided in section 1016, is less than the fair market value of the property as of March 1, 1913, then the basis for determining gain shall be such fair market value. In determining the fair market value of stock in a corporation as of March 1, 1913, due regard shall be given to the fair market value of the assets of the corporation as of that date.

26 U.S.C. § 1054 Certain stock of Federal National Mortgage Association

In the case of a share of stock issued pursuant to section 303(c) of the Federal National Mortgage Association Charter Act (12 U.S.C., sec. 1718), the basis of such share in the hands of the initial holder shall be an amount equal to the capital contributions evidenced by such share reduced by the amount (if any) required by section 162(d) to be treated (with respect to such share) as ordinary and necessary expenses paid or incurred in carrying on a trade or business.

26 U.S.C. § 1055 Redeemable ground rents

(a) CharacterFor purposes of this subtitle—(1) a redeemable ground rent shall be treated as being in the nature of a mortgage, and (2) real property held subject to liabilities under a redeemable ground rent shall be treated as held subject to liabilities under a mortgage. (b) Application of subsection (a)(1) In generalSubsection (a) shall take effect on the day after the date of the enactment of this section and shall apply with respect to taxable years ending after such date of enactment. (2) Basis of holderIn determining the basis of real property held subject to liabilities under a redeemable ground rent, subsection (a) shall apply whether such real property was acquired before or after the enactment of this section. (3) Basis of reserved redeemable ground rentIn the case of a redeemable ground rent reserved or created on or before the date of the enactment of this section in connection with a transfer of the right to hold real property subject to liabilities under such ground rent, the basis of such ground rent after such date in the hands of the person who reserved or created the ground rent shall be the amount taken into account in respect of such ground rent for Federal income tax purposes as consideration for the disposition of such real property. If no such amount was taken into account, such basis shall be determined as if this section had not been enacted. (c) Redeemable ground rent definedFor purposes of this subtitle, the term “redeemable ground rent” means only a ground rent with respect to which—(1) there is a lease of land which is assignable by the lessee without the consent of the lessor and which (together with periods for which the lease may be renewed at the option of the lessee) is for a term in excess of 15 years, (2) the leaseholder has a present or future right to terminate, and to acquire the entire interest of the lessor in the land, by payment of a determined or determinable amount, which right exists by virtue of State or local law and not because of any private agreement or privately created condition, and (3) the lessor’s interest in the land is primarily a security interest to protect the rental payments to which the lessor is entitled under the lease. (d) Cross referenceFor treatment of rentals under redeemable ground rents as interest, see section 163(c).

26 U.S.C. § 1058 Transfers of securities under certain agreements

(a) General ruleIn the case of a taxpayer who transfers securities (as defined in section 1236(c)) pursuant to an agreement which meets the requirements of subsection (b), no gain or loss shall be recognized on the exchange of such securities by the taxpayer for an obligation under such agreement, or on the exchange of rights under such agreement by that taxpayer for securities identical to the securities transferred by that taxpayer. (b) Agreement requirementsIn order to meet the requirements of this subsection, an agreement shall—(1) provide for the return to the transferor of securities identical to the securities transferred; (2) require that payments shall be made to the transferor of amounts equivalent to all interest, dividends, and other distributions which the owner of the securities is entitled to receive during the period beginning with the transfer of the securities by the transferor and ending with the transfer of identical securities back to the transferor; (3) not reduce the risk of loss or opportunity for gain of the transferor of the securities in the securities transferred; and (4) meet such other requirements as the Secretary may by regulation prescribe. (c) BasisProperty acquired by a taxpayer described in subsection (a), in a transaction described in that subsection, shall have the same basis as the property transferred by that taxpayer.

26 U.S.C. § 1059 Corporate shareholder’s basis in stock reduced by nontaxed portion of extraordinary dividends

(a) General ruleIf any corporation receives any extraordinary dividend with respect to any share of stock and such corporation has not held such stock for more than 2 years before the dividend announcement date—(1) Reduction in basisThe basis of such corporation in such stock shall be reduced (but not below zero) by the nontaxed portion of such dividends. (2) Amounts in excess of basisIf the nontaxed portion of such dividends exceeds such basis, such excess shall be treated as gain from the sale or exchange of such stock for the taxable year in which the extraordinary dividend is received. (b) Nontaxed portionFor purposes of this section—(1) In generalThe nontaxed portion of any dividend is the excess (if any) of—(A) the amount of such dividend, over (B) the taxable portion of such dividend. (2) Taxable portionThe taxable portion of any dividend is—(A) the portion of such dividend includible in gross income, reduced by (B) the amount of any deduction allowable with respect to such dividend under section 243 11 So in original. Probably should be followed by a comma. 245, or 245A. (c) Extraordinary dividend definedFor purposes of this section—(1) In generalThe term “extraordinary dividend” means any dividend with respect to a share of stock if the amount of such dividend equals or exceeds the threshold percentage of the taxpayer’s adjusted basis in such share of stock. (2) Threshold percentageThe term “threshold percentage” means—(A) 5 percent in the case of stock which is preferred as to dividends, and (B) 10 percent in the case of any other stock. (3) Aggregation of dividends(A) Aggregation within 85-day periodAll dividends—(i) which are received by the taxpayer (or a person described in subparagraph (C)) with respect to any share of stock, and (ii) which have ex-dividend dates within the same period of 85 consecutive days, shall be treated as 1 dividend. (B) Aggregation within 1 year where dividends exceed 20 percent of adjusted basisAll dividends—(i) which are received by the taxpayer (or a person described in subparagraph (C)) with respect to any share of stock, and (ii) which have ex-dividend dates during the same period of 365 consecutive days, shall be treated as extraordinary dividends if the aggregate of such dividends exceeds 20 percent of the taxpayer’s adjusted basis in such stock (determined without regard to this section). (C) Substituted basis transactionsIn the case of any stock, a person is described in this subparagraph if—(i) the basis of such stock in the hands of such person is determined in whole or in part by reference to the basis of such stock in the hands of the taxpayer, or (ii) the basis of such stock in the hands of the taxpayer is determined in whole or in part by reference to the basis of such stock in the hands of such person. (4) Fair market value determinationIf the taxpayer establishes to the satisfaction of the Secretary the fair market value of any share of stock as of the day before the ex-dividend date, the taxpayer may elect to apply paragraphs (1) and (3) by substituting such value for the taxpayer’s adjusted basis. (d) Special rulesFor purposes of this section—(1) Time for reductionAny reduction in basis under subsection (a)(1) shall be treated as occurring at the beginning of the ex-dividend date of the extraordinary dividend to which the reduction relates. (2) Distributions in kindTo the extent any dividend consists of property other than cash, the amount of such dividend shall be treated as the fair market value of such property (as of the date of the distribution) reduced as provided in section 301(b)(2). (3) Determination of holding periodFor purposes of determining the holding period of stock under subsection (a), rules similar to the rules of paragraphs (3) and (4) of section 246(c) shall apply and there shall not be taken into account any day which is more than 2 years after the date on which such share becomes ex-dividend. (4) Ex-dividend dateThe term “ex-dividend date” means the date on which the share of stock becomes ex-dividend. (5) Dividend announcement dateThe term “dividend announcement date” means, with respect to any dividend, the date on which the corporation declares, announces, or agrees to the amount or payment of such dividend, whichever is the earliest. (6) Exception where stock held during entire existence of corporation(A) In generalSubsection (a) shall not apply to any extraordinary dividend with respect to any share of stock of a corporation if—(i) such stock was held by the taxpayer during the entire period such corporation was in existence, and (ii) except as provided in regulations, no earnings and profits of such corporation were attributable to transfers of property from (or earnings and profits of) a corporation which is not a qualified corporation. (B) Qualified corporationFor purposes of subparagraph (A), the term “qualified corporation” means any corporation (including a predecessor corporation)—(i) with respect to which the taxpayer holds directly or indirectly during the entire period of such corporation’s existence at least the same ownership interest as the taxpayer holds in the corporation distributing the extraordinary dividend, and (ii) which has no earnings and profits—(I) which were earned by, or (II) which are attributable to gain on property which accrued during a period the corporation holding the property was, a corporation not described in clause (i). (C) Application of paragraphThis paragraph shall not apply to any extraordinary dividend to the extent such application is inconsistent with the purposes of this section. (e) Special rules for certain distributions(1) Treatment of partial liquidations and certain redemptionsExcept as otherwise provided in regulations—(A) RedemptionsIn the case of any redemption of stock—(i) which is part of a partial liquidation (within the meaning of section 302(e)) of the redeeming corporation, (ii) which is not pro rata as to all shareholders, or (iii) which would not have been treated (in whole or in part) as a dividend if—(I) any options had not been taken into account under section 318(a)(4), or (II) section 304(a) had not applied, any amount treated as a dividend with respect to such redemption shall be treated as an extraordinary dividend to which paragraphs (1) and (2) of subsection (a) apply without regard to the period the taxpayer held such stock. In the case of a redemption described in clause (iii), only the basis in the stock redeemed shall be taken into account under subsection (a). (B) Reorganizations, etc.An exchange described in section 356 which is treated as a dividend shall be treated as a redemption of stock for purposes of applying subparagraph (A). (2) Qualifying dividends(A) In generalExcept as provided in regulations, the term “extraordinary dividend” does not include any qualifying dividend (within the meaning of section 243). (B) ExceptionSubparagraph (A) shall not apply to any portion of a dividend which is attributable to earnings and profits which—(i) were earned by a corporation during a period it was not a member of the affiliated group, or (ii) are attributable to gain on property which accrued during a period the corporation holding the property was not a member of the affiliated group. (3) Qualified preferred dividends(A) In generalIn the case of 1 or more qualified preferred dividends with respect to any share of stock—(i) this section shall not apply to such dividends if the taxpayer holds such stock for more than 5 years, and (ii) if the taxpayer disposes of such stock before it has been held for more than 5 years, the aggregate reduction under subsection (a)(1) with respect to such dividends shall not be greater than the excess (if any) of—(I) the qualified preferred dividends paid with respect to such stock during the period the taxpayer held such stock, over (II) the qualified preferred dividends which would have been paid during such period on the basis of the stated rate of return. (B) Rate of returnFor purposes of this paragraph—(i) Actual rate of returnThe actual rate of return shall be the rate of return for the period for which the taxpayer held the stock, determined—(I) by only taking into account dividends during such period, and (II) by using the lesser of the adjusted basis of the taxpayer in such stock or the liquidation preference of such stock. (ii) Stated rate of returnThe stated rate of return shall be the annual rate of the qualified preferred dividend payable with respect to any share of stock (expressed as a percentage of the amount described in clause (i)(II)). (C) Definitions and special rulesFor purposes of this paragraph—(i) Qualified preferred dividendThe term “qualified preferred dividend” means any fixed dividend payable with respect to any share of stock which—(I) provides for fixed preferred dividends payable not less frequently than annually, and (II) is not in arrears as to dividends at the time the taxpayer acquires the stock. Such term shall not include any dividend payable with respect to any share of stock if the actual rate of return on such stock exceeds 15 percent. (ii) Holding periodIn determining the holding period for purposes of subparagraph (A)(ii), subsection (d)(3) shall be applied by substituting “5 years” for “2 years”. (f) Treatment of dividends on certain preferred stock(1) In generalAny dividend with respect to disqualified preferred stock shall be treated as an extraordinary dividend to which paragraphs (1) and (2) of subsection (a) apply without regard to the period the taxpayer held the stock. (2) Disqualified preferred stockFor purposes of this subsection, the term “disqualified preferred stock” means any stock which is preferred as to dividends if—(A) when issued, such stock has a dividend rate which declines (or can reasonably be expected to decline) in the future, (B) the issue price of such stock exceeds its liquidation rights or its stated redemption price, or (C) such stock is otherwise structured—(i) to avoid the other provisions of this section, and (ii) to enable corporate shareholders to reduce tax through a combination of dividend received deductions and loss on the disposition of the stock. (g) RegulationsThe Secretary shall prescribe such regulations as may be appropriate to carry out the purposes of this section, including regulations—(1) providing for the application of this section in the case of stock dividends, stock splits, reorganizations, and other similar transactions, in the case of stock held by pass-thru entities, and in the case of consolidated groups, and (2) providing that the rules of subsection (f) shall apply in the case of stock which is not preferred as to dividends in cases where stock is structured to avoid the purposes of this section.

26 U.S.C. § 1059A Limitation on taxpayer’s basis or inventory cost in property imported from related persons

(a) In generalIf any property is imported into the United States in a transaction (directly or indirectly) between related persons (within the meaning of section 482), the amount of any costs—(1) which are taken into account in computing the basis or inventory cost of such property by the purchaser, and (2) which are also taken into account in computing the customs value of such property, shall not, for purposes of computing such basis or inventory cost for purposes of this chapter, be greater than the amount of such costs taken into account in computing such customs value. (b) Customs value; importFor purposes of this section—(1) Customs valueThe term “customs value” means the value taken into account for purposes of determining the amount of any customs duties or any other duties which may be imposed on the importation of any property. (2) ImportExcept as provided in regulations, the term “import” means the entering, or withdrawal from warehouse, for consumption.

26 U.S.C. § 1060 Special allocation rules for certain asset acquisitions

(a) General ruleIn the case of any applicable asset acquisition, for purposes of determining both—(1) the transferee’s basis in such assets, and (2) the gain or loss of the transferor with respect to such acquisition, the consideration received for such assets shall be allocated among such assets acquired in such acquisition in the same manner as amounts are allocated to assets under section 338(b)(5). If in connection with an applicable asset acquisition, the transferee and transferor agree in writing as to the allocation of any consideration, or as to the fair market value of any of the assets, such agreement shall be binding on both the transferee and transferor unless the Secretary determines that such allocation (or fair market value) is not appropriate. (b) Information required to be furnished to SecretaryUnder regulations, the transferor and transferee in an applicable asset acquisition shall, at such times and in such manner as may be provided in such regulations, furnish to the Secretary the following information:(1) The amount of the consideration received for the assets which is allocated to section 197 intangibles. (2) Any modification of the amount described in paragraph (1). (3) Any other information with respect to other assets transferred in such acquisition as the Secretary deems necessary to carry out the provisions of this section. (c) Applicable asset acquisitionFor purposes of this section, the term “applicable asset acquisition” means any transfer (whether directly or indirectly)—(1) of assets which constitute a trade or business, and (2) with respect to which the transferee’s basis in such assets is determined wholly by reference to the consideration paid for such assets. A transfer shall not be treated as failing to be an applicable asset acquisition merely because section 1031 applies to a portion of the assets transferred. (d) Treatment of certain partnership transactionsIn the case of a distribution of partnership property or a transfer of an interest in a partnership—(1) the rules of subsection (a) shall apply but only for purposes of determining the value of section 197 intangibles for purposes of applying section 755, and (2) if section 755 applies, such distribution or transfer (as the case may be) shall be treated as an applicable asset acquisition for purposes of subsection (b). (e) Information required in case of certain transfers of interests in entities(1) In generalIf—(A) a person who is a 10-percent owner with respect to any entity transfers an interest in such entity, and (B) in connection with such transfer, such owner (or a related person) enters into an employment contract, covenant not to compete, royalty or lease agreement, or other agreement with the transferee, such owner and the transferee shall, at such time and in such manner as the Secretary may prescribe, furnish such information as the Secretary may require. (2) 10-percent ownerFor purposes of this subsection—(A) In generalThe term “10-percent owner” means, with respect to any entity, any person who holds 10 percent or more (by value) of the interests in such entity immediately before the transfer. (B) Constructive ownershipSection 318 shall apply in determining ownership of stock in a corporation. Similar principles shall apply in determining the ownership of interests in any other entity. (3) Related personFor purposes of this subsection, the term “related person” means any person who is related (within the meaning of section 267(b) or 707(b)(1)) to the 10-percent owner. (f) Cross referenceFor provisions relating to penalties for failure to file a return required by this section, see section 6721.

26 U.S.C. § 1061 Partnership interests held in connection with performance of services

(a) In generalIf one or more applicable partnership interests are held by a taxpayer at any time during the taxable year, the excess (if any) of—(1) the taxpayer’s net long-term capital gain with respect to such interests for such taxable year, over (2) the taxpayer’s net long-term capital gain with respect to such interests for such taxable year computed by applying paragraphs (3) and (4) of sections 11 So in original. Probably should be “section”. 1222 by substituting “3 years” for “1 year”, shall be treated as short-term capital gain, notwithstanding section 83 or any election in effect under section 83(b). (b) Special ruleTo the extent provided by the Secretary, subsection (a) shall not apply to income or gain attributable to any asset not held for portfolio investment on behalf of third party investors. (c) Applicable partnership interestFor purposes of this section—(1) In generalExcept as provided in this paragraph or paragraph (4), the term “applicable partnership interest” means any interest in a partnership which, directly or indirectly, is transferred to (or is held by) the taxpayer in connection with the performance of substantial services by the taxpayer, or any other related person, in any applicable trade or business. The previous sentence shall not apply to an interest held by a person who is employed by another entity that is conducting a trade or business (other than an applicable trade or business) and only provides services to such other entity. (2) Applicable trade or businessThe term “applicable trade or business” means any activity conducted on a regular, continuous, and substantial basis which, regardless of whether the activity is conducted in one or more entities, consists, in whole or in part, of—(A) raising or returning capital, and (B) either—(i) investing in (or disposing of) specified assets (or identifying specified assets for such investing or disposition), or (ii) developing specified assets. (3) Specified assetThe term “specified asset” means securities (as defined in section 475(c)(2) without regard to the last sentence thereof), commodities (as defined in section 475(e)(2)), real estate held for rental or investment, cash or cash equivalents, options or derivative contracts with respect to any of the foregoing, and an interest in a partnership to the extent of the partnership’s proportionate interest in any of the foregoing. (4) ExceptionsThe term “applicable partnership interest” shall not include—(A) any interest in a partnership directly or indirectly held by a corporation, or (B) any capital interest in the partnership which provides the taxpayer with a right to share in partnership capital commensurate with—(i) the amount of capital contributed (determined at the time of receipt of such partnership interest), or (ii) the value of such interest subject to tax under section 83 upon the receipt or vesting of such interest. (5) Third party investorThe term “third party investor” means a person who—(A) holds an interest in the partnership which does not constitute property held in connection with an applicable trade or business; and (B) is not (and has not been) actively engaged, and is (and was) not related to a person so engaged, in (directly or indirectly) providing substantial services described in paragraph (1) for such partnership or any applicable trade or business. (d) Transfer of applicable partnership interest to related person(1) In generalIf a taxpayer transfers any applicable partnership interest, directly or indirectly, to a person related to the taxpayer, the taxpayer shall include in gross income (as short term capital gain) the excess (if any) of—(A) so much of the taxpayer’s long-term capital gains with respect to such interest for such taxable year attributable to the sale or exchange of any asset held for not more than 3 years as is allocable to such interest, over (B) any amount treated as short term capital gain under subsection (a) with respect to the transfer of such interest. (2) Related personFor purposes of this paragraph, a person is related to the taxpayer if—(A) the person is a member of the taxpayer’s family within the meaning of section 318(a)(1), or (B) the person performed a service within the current calendar year or the preceding three calendar years in any applicable trade or business in which or for which the taxpayer performed a service. (e) ReportingThe Secretary shall require such reporting (at the time and in the manner prescribed by the Secretary) as is necessary to carry out the purposes of this section. (f) RegulationsThe Secretary shall issue such regulations or other guidance as is necessary or appropriate to carry out the purposes of this section 22 So in original. Probably should be followed by a period.

26 U.S.C. § 1062 Gain from the sale or exchange of qualified farmland property to qualified farmers

(a) Election to pay tax in installmentsIn the case of gain from the sale or exchange of qualified farmland property to a qualified farmer, at the election of the taxpayer, the portion of the net income tax of such taxpayer for the taxable year of the sale or exchange which is equal to the applicable net tax liability shall be paid in 4 equal installments. (b) Rules relating to installment payments(1) Date for payment of installmentsIf an election is made under subsection (a), the first installment shall be paid on the due date (determined without regard to any extension of time for filing the return) for the return of tax for the taxable year in which the sale or exchange occurs and each succeeding installment shall be paid on the due date (as so determined) for the return of tax for the taxable year following the taxable year with respect to which the preceding installment was made. (2) Acceleration of payment(A) In generalIf there is an addition to tax for failure to timely pay any installment required under this section, then the unpaid portion of all remaining installments shall be due on the date of such failure. (B) IndividualsIn the case of an individual, if the individual dies, then the unpaid portion of all remaining installment shall be paid on the due date for the return of tax for the taxable year in which the taxpayer dies. (C) C corporationsIn the case of a taxpayer which is a C corporation, trust, or estate, if there is a liquidation or sale of substantially all the assets of the taxpayer (including in a title 11 or similar case), a cessation of business by the taxpayer (in the case of a C corporation), or any similar circumstance, then the unpaid portion of all remaining installments shall be due on the date of such event (or in the case of a title 11 or similar case, the day before the petition is filed). The preceding sentence shall not apply to the sale of substantially all the assets of a taxpayer to a buyer if such buyer enters into an agreement with the Secretary under which such buyer is liable for the remaining installments due under this subsection in the same manner as if such buyer were the taxpayer. (3) Proration of deficiency to installmentsIf an election is made under subsection (a) to pay the applicable net tax liability in installments and a deficiency has been assessed with respect to such applicable net tax liability, the deficiency shall be prorated to the installments payable under subsection (a). The part of the deficiency so prorated to any installment the date for payment of which has not arrived shall be collected at the same time as, and as a part of, such installment. The part of the deficiency so prorated to any installment the date for payment of which has arrived shall be paid upon notice and demand from the Secretary. This section shall not apply if the deficiency is due to negligence, to intentional disregard of rules and regulations, or to fraud with intent to evade tax. (c) Election(1) In generalAny election under subsection (a) shall be made not later than the due date for the return of tax for the taxable year described in subsection (a). (2) Partnerships and S corporationsIn the case of a sale or exchange described in subsection (a) by a partnership or S corporation, the election under subsection (a) shall be made at the partner or shareholder level. The Secretary may prescribe such regulations or other guidance as necessary to carry out the purposes of this paragraph. (d) DefinitionsFor purposes of this section—(1) Applicable net tax liability(A) In generalThe applicable net tax liability with respect to the sale or exchange of any property described in subsection (a) is the excess (if any) of—(i) such taxpayer’s net income tax for the taxable year, over (ii) such taxpayer’s net income tax for such taxable year determined without regard to any gain recognized from the sale or exchange of such property. (B) Net income taxThe term “net income tax” means the regular tax liability reduced by the credits allowed under subparts A, B, and D of part IV of subchapter A. (2) Qualified farmland property(A) In generalThe term “qualified farmland property” means real property located in the United States—(i) which—(I) has been used by the taxpayer as a farm for farming purposes, or (II) leased by the taxpayer to a qualified farmer for farming purposes, during substantially all of the 10-year period ending on the date of the qualified sale or exchange, and (ii) which is subject to a covenant or other legally enforceable restriction which prohibits the use of such property other than as a farm for farming purposes for any period before the date that is 10 years after the date of the sale or exchange described in subsection (a). For purposes of clause (i), property which is used or leased by a partnership or S corporation in a manner described in such clause shall be treated as used or leased in such manner by each person who holds a direct or indirect interest in such partnership or S corporation. (B) Farm; farming purposesThe terms “farm” and “farming purposes” have the respective meanings given such terms under section 2032A(e). (3) Qualified farmerThe term “qualified farmer” means any individual who is actively engaged in farming (within the meaning of subsections (b) and (c) of section 1001 of the Food Security Act of 1986 11 See References in Text note below. (7 U.S.C. 1308–1(b) and (c))). (e) Return requirementA taxpayer making an election under subsection (a) shall include with the return for the taxable year of the sale or exchange described in subsection (a) a copy of the covenant or other legally enforceable restriction described in subsection (d)(2)(A)(ii).

26 U.S.C. § 1063 Cross references

(1) For nonrecognition of gain in connection with the transfer of obsolete vessels to the Maritime Administration under chapter 573 of title 46, United States Code, see section 57307 of title 46. (2) For recognition of gain or loss in connection with the construction of new vessels, see chapter 533 of title 46, United States Code.

26 U.S.C. § 1091 Loss from wash sales of stock or securities

(a) Disallowance of loss deductionIn the case of any loss claimed to have been sustained from any sale or other disposition of shares of stock or securities where it appears that, within a period beginning 30 days before the date of such sale or disposition and ending 30 days after such date, the taxpayer has acquired (by purchase or by an exchange on which the entire amount of gain or loss was recognized by law), or has entered into a contract or option so to acquire, substantially identical stock or securities, then no deduction shall be allowed under section 165 unless the taxpayer is a dealer in stock or securities and the loss is sustained in a transaction made in the ordinary course of such business. For purposes of this section, the term “stock or securities” shall, except as provided in regulations, include contracts or options to acquire or sell stock or securities. (b) Stock acquired less than stock soldIf the amount of stock or securities acquired (or covered by the contract or option to acquire) is less than the amount of stock or securities sold or otherwise disposed of, then the particular shares of stock or securities the loss from the sale or other disposition of which is not deductible shall be determined under regulations prescribed by the Secretary. (c) Stock acquired not less than stock soldIf the amount of stock or securities acquired (or covered by the contract or option to acquire) is not less than the amount of stock or securities sold or otherwise disposed of, then the particular shares of stock or securities the acquisition of which (or the contract or option to acquire which) resulted in the nondeductibility of the loss shall be determined under regulations prescribed by the Secretary. (d) Unadjusted basis in case of wash sale of stockIf the property consists of stock or securities the acquisition of which (or the contract or option to acquire which) resulted in the nondeductibility (under this section or corresponding provisions of prior internal revenue laws) of the loss from the sale or other disposition of substantially identical stock or securities, then the basis shall be the basis of the stock or securities so sold or disposed of, increased or decreased, as the case may be, by the difference, if any, between the price at which the property was acquired and the price at which such substantially identical stock or securities were sold or otherwise disposed of. (e) Certain short sales of stock or securities and securities futures contracts to sellRules similar to the rules of subsection (a) shall apply to any loss realized on the closing of a short sale of (or the sale, exchange, or termination of a securities futures contract to sell) stock or securities if, within a period beginning 30 days before the date of such closing and ending 30 days after such date—(1) substantially identical stock or securities were sold, or (2) another short sale of (or securities futures contracts to sell) substantially identical stock or securities was entered into. For purposes of this subsection, the term “securities futures contract” has the meaning provided by section 1234B(c). (f) Cash settlementThis section shall not fail to apply to a contract or option to acquire or sell stock or securities solely by reason of the fact that the contract or option settles in (or could be settled in) cash or property other than such stock or securities.

26 U.S.C. § 1092 Straddles

(a) Recognition of loss in case of straddles, etc.(1) Limitation on recognition of loss(A) In generalAny loss with respect to 1 or more positions shall be taken into account for any taxable year only to the extent that the amount of such loss exceeds the unrecognized gain (if any) with respect to 1 or more positions which were offsetting positions with respect to 1 or more positions from which the loss arose. (B) Carryover of lossAny loss which may not be taken into account under subparagraph (A) for any taxable year shall, subject to the limitations under subparagraph (A), be treated as sustained in the succeeding taxable year. (2) Special rule for identified straddles(A) In generalIn the case of any straddle which is an identified straddle—(i) paragraph (1) shall not apply with respect to positions comprising the identified straddle, (ii) if there is any loss with respect to any position of the identified straddle, the basis of each of the offsetting positions in the identified straddle shall be increased by an amount which bears the same ratio to the loss as the unrecognized gain with respect to such offsetting position bears to the aggregate unrecognized gain with respect to all such offsetting positions, (iii) if the application of clause (ii) does not result in an increase in the basis of any offsetting position in the identified straddle, the basis of each of the offsetting positions in the identified straddle shall be increased in a manner which—(I) is reasonable, consistent with the purposes of this paragraph, and consistently applied by the taxpayer, and (II) results in an aggregate increase in the basis of such offsetting positions which is equal to the loss described in clause (ii), and (iv) any loss described in clause (ii) shall not otherwise be taken into account for purposes of this title. (B) Identified straddleThe term “identified straddle” means any straddle—(i) which is clearly identified on the taxpayer’s records as an identified straddle before the earlier of—(I) the close of the day on which the straddle is acquired, or (II) such time as the Secretary may prescribe by regulations. (ii) to the extent provided by regulations, the value of each position of which (in the hands of the taxpayer immediately before the creation of the straddle) is not less than the basis of such position in the hands of the taxpayer at the time the straddle is created, and (iii) which is not part of a larger straddle. A straddle shall be treated as clearly identified for purposes of clause (i) only if such identification includes an identification of the positions in the straddle which are offsetting with respect to other positions in the straddle. (C) Application to liabilities and obligationsExcept as otherwise provided by the Secretary, rules similar to the rules of clauses (ii) and (iii) of subparagraph (A) shall apply for purposes of this paragraph with respect to any position which is, or has been, a liability or obligation. (D) RegulationsThe Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this paragraph. Such regulations or other guidance may specify the proper methods for clearly identifying a straddle as an identified straddle (and for identifying the positions comprising such straddle), the rules for the application of this section to a taxpayer which fails to comply with those identification requirements, the rules for the application of this section to a position which is or has been a liability or obligation, methods of loss allocation which satisfy the requirements of subparagraph (A)(iii), and the ordering rules in cases where a taxpayer disposes (or otherwise ceases to be the holder) of any part of any position which is part of an identified straddle. (3) Unrecognized gainFor purposes of this subsection—(A) In generalThe term “unrecognized gain” means—(i) in the case of any position held by the taxpayer as of the close of the taxable year, the amount of gain which would be taken into account with respect to such position if such position were sold on the last business day of such taxable year at its fair market value, and (ii) in the case of any position with respect to which, as of the close of the taxable year, gain has been realized but not recognized, the amount of gain so realized. (B) Special rule for identified straddlesFor purposes of paragraph (2)(A)(ii), the unrecognized gain with respect to any offsetting position shall be the excess of the fair market value of the position at the time of the determination over the fair market value of the position at the time the taxpayer identified the position as a position in an identified straddle. (C) Reporting of gain(i) In generalEach taxpayer shall disclose to the Secretary, at such time and in such manner and form as the Secretary may prescribe by regulations—(I) each position (whether or not part of a straddle) with respect to which, as of the close of the taxable year, there is unrecognized gain, and (II) the amount of such unrecognized gain. (ii) Reports not required in certain casesClause (i) shall not apply—(I) to any position which is part of an identified straddle, (II) to any position which, with respect to the taxpayer, is property described in paragraph (1) or (2) of section 1221(a) or to any position which is part of a hedging transaction (as defined in section 1256(e)), or (III) with respect to any taxable year if no loss on a position (including a regulated futures contract) has been sustained during such taxable year or if the only loss sustained on such position is a loss described in subclause (II). (b) Regulations(1) In generalThe Secretary shall prescribe such regulations with respect to gain or loss on positions which are a part of a straddle as may be appropriate to carry out the purposes of this section and section 263(g). To the extent consistent with such purposes, such regulations shall include rules applying the principles of subsections (a) and (d) of section 1091 and of subsections (b) and (d) of section 1233. (2) Regulations relating to mixed straddles(A) Elective provisions in lieu of section 1233(d) principlesThe regulations prescribed under paragraph (1) shall provide that—(i) the taxpayer may offset gains and losses from positions which are part of mixed straddles—(I) by straddle-by-straddle identification, or (II) by the establishment (with respect to any class of activities) of a mixed straddle account for which gains and losses would be recognized (and offset) on a periodic basis, (ii) such offsetting will occur before the application of section 1256, and section 1256(a)(3) will only apply to net gain or net loss attributable to section 1256 contracts, and (iii) the principles of section 1233(d) shall not apply with respect to any straddle identified under clause (i)(I) or part of an account established under clause (i)(II). (B) Limitation on net gain or net loss from mixed straddle accountIn the case of any mixed straddle account referred to in subparagraph (A)(i)(II)—(i) Not more than 50 percent of net gain may be treated as long-term capital gainIn no event shall more than 50 percent of the net gain from such account for any taxable year be treated as long-term capital gain. (ii) Not more than 40 percent of net loss may be treated as short-term capital lossIn no event shall more than 40 percent of the net loss from such account for any taxable year be treated as short-term capital loss. (C) Authority to treat certain positions as mixed straddlesThe regulations prescribed under paragraph (1) may treat as a mixed straddle positions not described in section 1256(d)(4). (D) Timing and character authorityThe regulations prescribed under paragraph (1) shall include regulations relating to the timing and character of gains and losses in case of straddles where at least 1 position is ordinary and at least 1 position is capital. (c) Straddle definedFor purposes of this section—(1) In generalThe term “straddle” means offsetting positions with respect to personal property. (2) Offsetting positions(A) In generalA taxpayer holds offsetting positions with respect to personal property if there is a substantial diminution of the taxpayer’s risk of loss from holding any position with respect to personal property by reason of his holding 1 or more other positions with respect to personal property (whether or not of the same kind). (B) Special rule for identified straddlesIn the case of any position which is not part of an identified straddle (within the meaning of subsection (a)(2)(B)), such position shall not be treated as offsetting with respect to any position which is part of an identified straddle. (3) Presumption(A) In generalFor purposes of paragraph (2), 2 or more positions shall be presumed to be offsetting if—(i) the positions are in the same personal property (whether established in such property or a contract for such property), (ii) the positions are in the same personal property, even though such property may be in a substantially altered form, (iii) the positions are in debt instruments of a similar maturity or other debt instruments described in regulations prescribed by the Secretary, (iv) the positions are sold or marketed as offsetting positions (whether or not such positions are called a straddle, spread, butterfly, or any similar name), (v) the aggregate margin requirement for such positions is lower than the sum of the margin requirements for each such position (if held separately), or (vi) there are such other factors (or satisfaction of subjective or objective tests) as the Secretary may by regulations prescribe as indicating that such positions are offsetting. For purposes of the preceding sentence, 2 or more positions shall be treated as described in clause (i), (ii), (iii), or (vi) only if the value of 1 or more of such positions ordinarily varies inversely with the value of 1 or more other such positions. (B) Presumption may be rebuttedAny presumption established pursuant to subparagraph (A) may be rebutted. (4) Exception for certain straddles consisting of qualified covered call options and the optioned stock(A) In generalIf—(i) all the offsetting positions making up any straddle consist of 1 or more qualified covered call options and the stock to be purchased from the taxpayer under such options, and (ii) such straddle is not part of a larger straddle, such straddle shall not be treated as a straddle for purposes of this section and section 263(g). (B) Qualified covered call option definedFor purposes of subparagraph (A), the term “qualified covered call option” means any option granted by the taxpayer to purchase stock held by the taxpayer (or stock acquired by the taxpayer in connection with the granting of the option) but only if—(i) such option is traded on a national securities exchange which is registered with the Securities and Exchange Commission or other market which the Secretary determines has rules adequate to carry out the purposes of this paragraph, (ii) such option is granted more than 30 days before the day on which the option expires, (iii) such option is not a deep-in-the-money option, (iv) such option is not granted by an options dealer (within the meaning of section 1256(g)(8)) in connection with his activity of dealing in options, and (v) gain or loss with respect to such option is not ordinary income or loss. (C) Deep-in-the-money optionFor purposes of subparagraph (B), the term “deep-in-the-money option” means an option having a strike price lower than the lowest qualified bench mark. (D) Lowest qualified bench mark(i) In generalExcept as otherwise provided in this subparagraph, for purposes of subparagraph (C), the term “lowest qualified bench mark” means the highest available strike price which is less than the applicable stock price. (ii) Special rule where option is for period more than 90 days and strike price exceeds $50In the case of an option—(I) which is granted more than 90 days before the date on which such option expires, and (II) with respect to which the strike price is more than $50, the lowest qualified bench mark is the second highest available strike price which is less than the applicable stock price. (iii) 85 percent rule where applicable stock price $25 or lessIf—(I) the applicable stock price is $25 or less, and (II) but for this clause, the lowest qualified bench mark would be less than 85 percent of the applicable stock price, the lowest qualified bench mark shall be treated as equal to 85 percent of the applicable stock price. (iv) Limitation where applicable stock price $150 or lessIf—(I) the applicable stock price is $150 or less, and (II) but for this clause, the lowest qualified bench mark would be less than the applicable stock price reduced by $10, the lowest qualified bench mark shall be treated as equal to the applicable stock price reduced by $10. (E) Special year-end ruleSubparagraph (A) shall not apply to any straddle for purposes of section 1092(a) if—(i) the qualified covered call options referred to in such subparagraph are closed or the stock is disposed of at a loss during any taxable year, (ii) gain on disposition of the stock to be purchased from the taxpayer under such options or gains on such options are includible in gross income for a later taxable year, and (iii) such stock or option was not held by the taxpayer for 30 days or more after the closing of such options or the disposition of such stock. For purposes of the preceding sentence, the rules of paragraphs (3) and (4) of section 246(c) shall apply in determining the period for which the taxpayer holds the stock. (F) Strike priceFor purposes of this paragraph, the term “strike price” means the price at which the option is exercisable. (G) Applicable stock priceFor purposes of subparagraph (D), the term “applicable stock price” means, with respect to any stock for which an option has been granted—(i) the closing price of such stock on the most recent day on which such stock was traded before the date on which such option was granted, or (ii) the opening price of such stock on the day on which such option was granted, but only if such price is greater than 110 percent of the price determined under clause (i). (H) RegulationsThe Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this paragraph. Such regulations may include modifications to the provisions of this paragraph which are appropriate to take account of changes in the practices of option exchanges or to prevent the use of options for tax avoidance purposes. (d) Definitions and special rulesFor purposes of this section—(1) Personal propertyThe term “personal property” means any personal property of a type which is actively traded. (2) PositionThe term “position” means an interest (including a futures or forward contract or option) in personal property. (3) Special rules for stockFor purposes of paragraph (1)—(A) In generalIn the case of stock, the term “personal property” includes stock only if—(i) such stock is of a type which is actively traded and at least 1 of the positions offsetting such stock is a position with respect to such stock or substantially similar or related property, or (ii) such stock is of a corporation formed or availed of to take positions in personal property which offset positions taken by any shareholder. (B) Rule for applicationFor purposes of determining whether subsection (e) applies to any transaction with respect to stock described in subparagraph (A)(ii), all includible corporations of an affiliated group (within the meaning of section 1504(a)) shall be treated as 1 taxpayer. (4) Positions held by related persons, etc.(A) In generalIn determining whether 2 or more positions are offsetting, the taxpayer shall be treated as holding any position held by a related person. (B) Related personFor purposes of subparagraph (A), a person is a related person to the taxpayer if with respect to any period during which a position is held by such person, such person—(i) is the spouse of the taxpayer, or (ii) files a consolidated return (within the meaning of section 1501) with the taxpayer for any taxable year which includes a portion of such period. (C) Certain flowthrough entitiesIf part or all of the gain or loss with respect to a position held by a partnership, trust, or other entity would properly be taken into account for purposes of this chapter by a taxpayer, then, except to the extent otherwise provided in regulations, such position shall be treated as held by the taxpayer. (5) Special rule for section 1256 contracts(A) General ruleIn the case of a straddle at least 1 (but not all) of the positions of which are section 1256 contracts, the provisions of this section shall apply to any section 1256 contract and any other position making up such straddle. (B) Special rule for identified straddlesFor purposes of subsection (a)(2) (relating to identified straddles), subparagraph (A) and section 1256(a)(4) shall not apply to a straddle all of the offsetting positions of which consist of section 1256 contracts. (6) Section 1256 contractThe term “section 1256 contract” has the meaning given such term by section 1256(b). (7) Special rules for foreign currency(A) Position to include interest in certain debtFor purposes of paragraph (2), an obligor’s interest in a nonfunctional currency denominated debt obligation is treated as a position in the nonfunctional currency. (B) Actively traded requirementFor purposes of paragraph (1), foreign currency for which there is an active interbank market is presumed to be actively traded. (8) Special rules for physically settled positionsFor purposes of subsection (a), if a taxpayer settles a position which is part of a straddle by delivering property to which the position relates (and such position, if terminated, would result in a realization of a loss), then such taxpayer shall be treated as if such taxpayer—(A) terminated the position for its fair market value immediately before the settlement, and (B) sold the property so delivered by the taxpayer at its fair market value. (e) Exception for hedging transactionsThis section shall not apply in the case of any hedging transaction (as defined in section 1256(e)). (f) Treatment of gain or loss and suspension of holding period where taxpayer grantor of qualified covered call optionIf a taxpayer holds any stock and grants a qualified covered call option to purchase such stock with a strike price less than the applicable stock price—(1) Treatment of lossAny loss with respect to such option shall be treated as long-term capital loss if, at the time such loss is realized, gain on the sale or exchange of such stock would be treated as long-term capital gain. (2) Suspension of holding periodThe holding period of such stock shall not include any period during which the taxpayer is the grantor of such option. (g) Cross referenceFor provision requiring capitalization of certain interest and carrying charges where there is a straddle, see section 263(g).