Internal Revenue Code:Sec. 1367. Adjustments to basis of stock of shareholders, etc
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Location in Internal Revenue Code
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter S - Tax Treatment of S Corporations and Their
Shareholders
PART II - TAX TREATMENT OF SHAREHOLDERS
Statute
Sec. 1367. Adjustments to basis of stock of shareholders, etc.
(a) General rule
(1) Increases in basis
The basis of each shareholder's stock in an S corporation shall
be increased for any period by the sum of the following items
determined with respect to that shareholder for such period:
(A) the items of income described in subparagraph (A) of
section 1366(a)(1),
(B) any nonseparately computed income determined under
subparagraph (B) of section 1366(a)(1), and
(C) the excess of the deductions for depletion over the basis
of the property subject to depletion.
(2) Decreases in basis
The basis of each shareholder's stock in an S corporation shall
be decreased for any period (but not below zero) by the sum of
the following items determined with respect to the shareholder
for such period:
(A) distributions by the corporation which were not
includible in the income of the shareholder by reason of
section 1368,
(B) the items of loss and deduction described in subparagraph
(A) of section 1366(a)(1),
(C) any nonseparately computed loss determined under
subparagraph (B) of section 1366(a)(1),
(D) any expense of the corporation not deductible in
computing its taxable income and not properly chargeable to
capital account, and
(E) the amount of the shareholder's deduction for depletion
for any oil and gas property held by the S corporation to the
extent such deduction does not exceed the proportionate share
of the adjusted basis of such property allocated to such
shareholder under section 613A(c)(11)(B).
The decrease under subparagraph (B) by reason of a charitable
contribution (as defined in section 170(c)) of property shall be
the amount equal to the shareholder's pro rata share of the
adjusted basis of such property. The preceding sentence shall
not apply to contributions made in taxable years beginning after
December 31, 2007.
(b) Special rules
(1) Income items
An amount which is required to be included in the gross income
of a shareholder and shown on his return shall be taken into
account under subparagraph (A) or (B) of subsection (a)(1) only
to the extent such amount is included in the shareholder's gross
income on his return, increased or decreased by any adjustment of
such amount in a redetermination of the shareholder's tax
liability.
(2) Adjustments in basis of indebtedness
(A) Reduction of basis
If for any taxable year the amounts specified in
subparagraphs (B), (C), (D), and (E) of subsection (a)(2)
exceed the amount which reduces the shareholder's basis to
zero, such excess shall be applied to reduce (but not below
zero) the shareholder's basis in any indebtedness of the S
corporation to the shareholder.
(B) Restoration of basis
If for any taxable year beginning after December 31, 1982,
there is a reduction under subparagraph (A) in the
shareholder's basis in the indebtedness of an S corporation to
a shareholder, any net increase (after the application of
paragraphs (1) and (2) of subsection (a)) for any subsequent
taxable year shall be applied to restore such reduction in
basis before any of it may be used to increase the
shareholder's basis in the stock of the S corporation.
(3) Coordination with sections 165(g) and 166(d)
This section and section 1366 shall be applied before the
application of sections 165(g) and 166(d) to any taxable year of
the shareholder or the corporation in which the security or debt
becomes worthless.
(4) Adjustments in case of inherited stock
(A) In general
If any person acquires stock in an S corporation by reason of
the death of a decedent or by bequest, devise, or inheritance,
section 691 shall be applied with respect to any item of income
of the S corporation in the same manner as if the decedent had
held directly his pro rata share of such item.
(B) Adjustments to basis
The basis determined under section 1014 of any stock in an S
corporation shall be reduced by the portion of the value of the
stock which is attributable to items constituting income in
respect of the decedent.
Sources
(Added Pub. L. 97-354, Sec. 2, Oct. 19, 1982, 96 Stat. 1679;
amended Pub. L. 98-369, div. A, title VII, Sec. 721(d), (w),
722(e)(2), July 18, 1984, 98 Stat. 967, 971, 974; Pub. L. 104-188,
title I, Sec. 1313(a), 1702(h)(14), Aug. 20, 1996, 110 Stat. 1785,
1874.)
Miscellaneous
AMENDMENTS
2006 - Pension Protection Act of 2006 (P.L. 109-280)
SEC. 1203. BASIS ADJUSTMENT TO STOCK OF S CORPORATION CONTRIBUTING
PROPERTY.
(a) In General.--Paragraph (2) of section 1367(a) (relating to
adjustments to basis of stock of shareholders, etc.) is amended by
adding at the end the following new flush sentence:
``The decrease under subparagraph (B) by reason of a charitable
contribution (as defined in section 170(c)) of property shall be
the amount equal to the shareholder's pro rata share of the
adjusted basis of such property. The preceding sentence shall
not apply to contributions made in taxable years beginning after
December 31, 2007.''.
1996 - Subsec. (a)(2)(E). Pub. L. 104-188, Sec. 1702(h)(14),
substituted ''section 613A(c)(11)(B)'' for ''section
613A(c)(13)(B)''.
Subsec. (b)(4). Pub. L. 104-188, Sec. 1313(a), added par. (4).
1984 - Subsec. (a)(2)(E). Pub. L. 98-369, Sec. 722(e)(2),
substituted ''for any oil and gas property held by the S
corporation to the extent such deduction does not exceed the
proportionate share of the adjusted basis of such property
allocated to such shareholder under section 613A(c)(13)(B)'' for
''under section 611 with respect to oil and gas wells''.
Subsec. (b)(2)(B). Pub. L. 98-369, Sec. 721(w), substituted ''for
any taxable year beginning after December 31, 1982, there is'' for
''for any taxable year there is''.
Subsec. (b)(3). Pub. L. 98-369, Sec. 721(d), inserted ''and
166(d)'' in heading and text.
EFFECTIVE DATE OF 1996 AMENDMENT
2006 - Pension Protection Act of 2006 (P.L. 109-280)
SEC. 1203. BASIS ADJUSTMENT TO STOCK OF S CORPORATION CONTRIBUTING
PROPERTY.
(b) <<NOTE: 26 USC 1367 note.>> Effective Date.--The amendment made
by this section shall apply to contributions made in taxable years
beginning after December 31, 2005.
EFFECTIVE DATE OF 1996 AMENDMENT
Section 1313(b) of Pub. L. 104-188 provided that: ''The amendment
made by subsection (a) (amending this section) shall apply in the
case of decedents dying after the date of the enactment of this Act
(Aug. 20, 1996).''
Amendment by section 1702(h)(14) of Pub. L. 104-188 effective,
except as otherwise expressly provided, as if included in the
provision of the Revenue Reconciliation Act of 1990, Pub. L.
101-508, title XI, to which such amendment relates, see section
1702(i) of Pub. L. 104-188, set out as a note under section 38 of
this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 721(d), (w) of Pub. L. 98-369 effective as
if included in the Subchapter S Revision Act of 1982, Pub. L.
97-354, see section 721(y)(1) of Pub. L. 98-369, set out as a note
under section 1361 of this title.
Section 722(b)(3)(B) of Pub. L. 98-369 provided that: ''The
amendment made by paragraph (2) (amending this section) shall apply
to taxable years beginning after December 31, 1982.''
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1982, see section 6(a) of Pub. L. 97-354, set out as a note under
section 1361 of this title.
References
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 108, 1016, 1366, 1368 of
this title.
