Internal Revenue Code:Sec. 1367. Adjustments to basis of stock of shareholders, etc

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Contents


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.
 

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