---
kind: "section"
citation: "26 U.S.C. § 307"
title: "26"
title_heading: "Internal Revenue Code"
number: "307"
heading: "Basis of stock and stock rights acquired in distributions"
release: "119-102"
url: "https://uscodex.org/usc/26/307"
units:
  - "Subtitle A — Income Taxes"
  - "Chapter 1 — Normal Taxes and Surtaxes"
  - "Subchapter C — Corporate Distributions and Adjustments"
  - "Part I — Distributions by Corporations"
  - "Subpart A — Effects on Recipients"
---

# §307. Basis of stock and stock rights acquired in distributions

- (a) **General rule—** If a [shareholder](/usc/26/543.md?p=a-4) in a [corporation](/usc/26/7701.md?p=a-3) receives its [stock](/usc/26/7701.md?p=a-7) or rights to acquire its [stock](/usc/26/7701.md?p=a-7) (referred to in this subsection as “new [stock](/usc/26/7701.md?p=a-7)”) in a distribution to which [section 305(a)](/usc/26/305.md?p=a) applies, then the basis of such new [stock](/usc/26/7701.md?p=a-7) and of the [stock](/usc/26/7701.md?p=a-7) with respect to which it is distributed (referred to in this section as “old [stock](/usc/26/7701.md?p=a-7)”), respectively, shall, in the [shareholder](/usc/26/543.md?p=a-4)’s hands, be determined by allocating between the old [stock](/usc/26/7701.md?p=a-7) and the new [stock](/usc/26/7701.md?p=a-7) the adjusted basis of the old [stock](/usc/26/7701.md?p=a-7). Such allocation shall be made under regulations prescribed by the [Secretary](/usc/26/7701.md?p=a-11-B).
- (b) **Exception for certain stock rights—**
  - (1) **In general—** If—
    - (A) a [corporation](/usc/26/7701.md?p=a-3) distributes rights to acquire its [stock](/usc/26/7701.md?p=a-7) to a [shareholder](/usc/26/543.md?p=a-4) in a distribution to which [section 305(a)](/usc/26/305.md?p=a) applies, and
    - (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](/usc/26/7701.md?p=a-7) at such time,

    then [subsection (a)](#a) shall not apply and the basis of such rights shall be zero, unless the [taxpayer](/usc/26/1313.md?p=b) elects under paragraph (2) of this subsection to determine the basis of the old [stock](/usc/26/7701.md?p=a-7) and of the [stock](/usc/26/7701.md?p=a-7) rights under the method of allocation provided in [subsection (a)](#a).

  - (2) **Election—** The election referred to in [paragraph (1)](#b-1) shall be made in the [return](/usc/26/6103.md?p=b-1) filed within the time prescribed by law ([including](/usc/26/7701.md?p=c) extensions thereof) for the [taxable year](/usc/26/441.md?p=b) in which such rights were received. Such election shall be made in such manner as the [Secretary](/usc/26/7701.md?p=a-11-B) may by regulations prescribe, and shall be irrevocable when made.
- (c) **Cross reference—** For basis of [stock](/usc/26/7701.md?p=a-7) and [stock](/usc/26/7701.md?p=a-7) rights distributed before June 22, 1954, see [section 1052](/usc/26/1052.md).

## Source credit

(Aug. 16, 1954, ch. 736, 68A Stat. 93; Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834.)

## Notes

### Editorial Notes

### Amendments

1976—Subsecs. (a), (b)(2). Pub. L. 94–455 struck out “or his delegate” after “Secretary”.