# 26 U.S.C. § 307: Basis of stock and stock rights acquired in distributions

Source: OLRC release point 119-134 <https://uscode.house.gov/us/usc/119-134/t26/s307>. Cite pinpoints as 26 U.S.C. § 307(a)(1).

## § 307(a) General rule

If a shareholder in a corporation receives its stock or rights to acquire its stock (referred to in this subsection as “new stock”) in a distribution to which section 305(a) applies, then the basis of such new stock and of the stock with respect to which it is distributed (referred to in this section as “old stock”), respectively, shall, in the shareholder’s hands, be determined by allocating between the old stock and the new stock the adjusted basis of the old stock. Such allocation shall be made under regulations prescribed by the Secretary.

## § 307(b) Exception for certain stock rights

**§ 307(b)(1) In general.** If—

**§ 307(b)(1)(A)** a corporation distributes rights to acquire its stock to a shareholder in a distribution to which section 305(a) applies, and

**§ 307(b)(1)(B)** the fair market value of such rights at the time of the distribution is less than 15 percent of the fair market value of the old stock at such time,

then subsection (a) shall not apply and the basis of such rights shall be zero, unless the taxpayer elects under paragraph (2) of this subsection to determine the basis of the old stock and of the stock rights under the method of allocation provided in subsection (a).

**§ 307(b)(2) Election.** The election referred to in paragraph (1) shall be made in the return filed within the time prescribed by law (including extensions thereof) for the taxable year in which such rights were received. Such election shall be made in such manner as the Secretary may by regulations prescribe, and shall be irrevocable when made.

## § 307(c) Cross reference

For basis of stock and stock rights distributed before June 22, 1954, see section 1052.

## Regulations

- [Treas. Reg. § 1.307-1](/26/reg/1.307-1.md): General. (interprets § 307)
- [Treas. Reg. § 1.307-2](/26/reg/1.307-2.md): Exception. (interprets § 307)

## Leading cases

- [Magness v. Commissioner, T.C. Memo. 1965-260](https://www.courtlistener.com/opinion/4813580/magness-v-commissioner/)

## Connections

Cites: § 305 Distributions of stock and stock rights; § 1052 Basis established by the Revenue Act of 1932 or 1934 or by the Internal Revenue Code of 1939

Cited by: § 312 Effect on earnings and profits; § 1223 Holding period of property

Derived from: 1939 § 113(a)(19)

## Amendments

- 1954-08-16: [Act Aug. 16, 1954, ch. 736](/26/act/1954-ch736.md), 68A Stat. 93
- 1976-10-04: [Pub. L. 94-455](/26/act/94-455.md), 90 Stat. 1834