# 26 U.S.C. § 961: Adjustments to basis of stock in controlled foreign corporations and of other property Source: OLRC release point 119-134 . Cite pinpoints as 26 U.S.C. § 961(a)(1). ## § 961(a) Increase in basis Under regulations prescribed by the Secretary, the basis of a United States shareholder’s stock in a controlled foreign corporation, and the basis of property of a United States shareholder by reason of which he is considered under section 958(a)(2) as owning stock of a controlled foreign corporation, shall be increased by the amount required to be included in his gross income under section 951(a) with respect to such stock or with respect to such property, as the case may be, but only to the extent to which such amount was included in the gross income of such United States shareholder. In the case of a United States shareholder who has made an election under section 962 for the taxable year, the increase in basis provided by this subsection shall not exceed an amount equal to the amount of tax paid under this chapter with respect to the amounts required to be included in his gross income under section 951(a). ## § 961(b) Reduction in basis **§ 961(b)(1) In general.** Under regulations prescribed by the Secretary, the adjusted basis of stock or other property with respect to which a United States shareholder or a United States person receives an amount which is excluded from gross income under section 959(a) shall be reduced by the amount so excluded. In the case of a United States shareholder who has made an election under section 962 for any prior taxable year, the reduction in basis provided by this paragraph shall not exceed an amount equal to the amount received which is excluded from gross income under section 959(a) after the application of section 962(d). **§ 961(b)(2) Amount in excess of basis.** To the extent that an amount excluded from gross income under section 959(a) exceeds the adjusted basis of the stock or other property with respect to which it is received, the amount shall be treated as gain from the sale or exchange of property. ## § 961(c) Basis adjustments in stock held by foreign corporations Under regulations prescribed by the Secretary, if a United States shareholder is treated under section 958(a)(2) as owning stock in a controlled foreign corporation which is owned by another controlled foreign corporation, then adjustments similar to the adjustments provided by subsections (a) and (b) shall be made to— **§ 961(c)(1)** the basis of such stock, and **§ 961(c)(2)** the basis of stock in any other controlled foreign corporation by reason of which the United States shareholder is considered under section 958(a)(2) as owning the stock described in paragraph (1), but only for the purposes of determining the amount included under section 951 in the gross income of such United States shareholder (or any other United States shareholder who acquires from any person any portion of the interest of such United States shareholder by reason of which such shareholder was treated as owning such stock, but only to the extent of such portion, and subject to such proof of identity of such interest as the Secretary may prescribe by regulations). The preceding sentence shall not apply with respect to any stock to which a basis adjustment applies under subsection (a) or (b). ## § 961(d) Basis in specified 10-percent owned foreign corporation reduced by nontaxed portion of dividend for purposes of determining loss If a domestic corporation received a dividend from a specified 10-percent owned foreign corporation (as defined in section 245A) in any taxable year, solely for purposes of determining loss on any disposition of stock of such foreign corporation in such taxable year or any subsequent taxable year, the basis of such domestic corporation in such stock shall be reduced (but not below zero) by the amount of any deduction allowable to such domestic corporation under section 245A with respect to such stock except to the extent such basis was reduced under section 1059 by reason of a dividend for which such a deduction was allowable. ## Regulations - [Treas. Reg. § 1.961-1](/26/reg/1.961-1.md): Increase in basis of stock in controlled foreign corporations and of other property. (interprets § 961) - [Treas. Reg. § 1.961-2](/26/reg/1.961-2.md): Reduction in basis of stock in foreign corporations and of other property. (interprets § 961) ## Leading cases - [Principal Life Insurance Company and Subsidiaries v. United States, 120 Fed. Cl. 41 (Fed. Cl. 2015)](https://www.courtlistener.com/opinion/2776459/principal-life-insurance-company-and-subsidiaries-v-united-states/) - [BTR Dunlop Holdings, Inc. v. Commissioner, T.C. Memo. 1999-377](https://www.courtlistener.com/opinion/4555245/btr-dunlop-holdings-inc-v-commissioner/) ## Proposed regulations (not in force) - [Prop. Treas. Reg. § 1.961-1](/26/prop/1.961-1_2024-27227.md): Overview, definitions, and rules of general applicability. (REG-105479-18, proposed 2024-12-02) - [Prop. Treas. Reg. § 1.961-2](/26/prop/1.961-2_2024-27227.md): Types of property units and basis. (REG-105479-18, proposed 2024-12-02) - [Prop. Treas. Reg. § 1.961-3](/26/prop/1.961-3_2024-27227.md): Basis increases for certain income inclusions. (REG-105479-18, proposed 2024-12-02) - [Prop. Treas. Reg. § 1.961-4](/26/prop/1.961-4_2024-27227.md): Basis reductions and gain recognition for distributions. (REG-105479-18, proposed 2024-12-02) - [Prop. Treas. Reg. § 1.961-5](/26/prop/1.961-5_2024-27227.md): Basis adjustments for foreign currency gain or loss and for general successor transactions. (REG-105479-18, proposed 2024-12-02) - [Prop. Treas. Reg. § 1.961-6](/26/prop/1.961-6_2024-27227.md): [Reserved]. (REG-105479-18, proposed 2024-12-02) - [Prop. Treas. Reg. § 1.961-8](/26/prop/1.961-8_2024-27227.md): Application of positive derived basis to covered shareholders' distributive shares of gain or loss. (REG-105479-18, proposed 2024-12-02) - [Prop. Treas. Reg. § 1.961-9](/26/prop/1.961-9_2024-27227.md): Exclusion from gross income of previously taxed earnings and profits resulting from positive section 961(c) basis. (REG-105479-18, proposed 2024-12-02) - [Prop. Treas. Reg. § 1.961-10](/26/prop/1.961-10_2024-27227.md): Gain recognition for negative basis. (REG-105479-18, proposed 2024-12-02) - [Prop. Treas. Reg. § 1.961-11](/26/prop/1.961-11_2024-27227.md): Amounts included in gross income of United States shareholders. (REG-105479-18, proposed 2024-12-02) - [Prop. Treas. Reg. § 1.961-12](/26/prop/1.961-12_2024-27227.md): Examples. (REG-105479-18, proposed 2024-12-02) - [Prop. Treas. Reg. § 1.961-13](/26/prop/1.961-13_2024-27227.md): Transition rules. (REG-105479-18, proposed 2024-12-02) - [Prop. Treas. Reg. § 1.961-14](/26/prop/1.961-14_2024-27227.md): Applicability dates. (REG-105479-18, proposed 2024-12-02) ## Connections Cites: § 245A Deduction for foreign source-portion of dividends received by domestic corporations from specified 10-percent owned foreign corporations; § 951 Amounts included in gross income of United States shareholders; § 958 Rules for determining stock ownership; § 959 Exclusion from gross income of previously taxed earnings and profits; § 962 Election by individuals to be subject to tax at corporate rates; § 1059 Corporate shareholder’s basis in stock reduced by nontaxed portion of extraordinary dividends Cited by: § 964 Miscellaneous provisions; § 1016 Adjustments to basis ## Amendments - 1962-10-16: [Pub. L. 87-834](/26/act/87-834.md), 76 Stat. 1022 - 1976-10-04: [Pub. L. 94-455](/26/act/94-455.md), 90 Stat. 1834 - 1997-08-05: [Pub. L. 105-34](/26/act/105-34.md), 111 Stat. 969 - 2005-12-21: [Pub. L. 109-135](/26/act/109-135.md), 119 Stat. 2635 - 2017-12-22: [Pub. L. 115-97](/26/act/115-97.md), 131 Stat. 2192