26 USC 11 - Special allocation rules for certain asset acquisitions

Collapse to view only Special allocation rules for certain asset acquisitions

[§ 1051. Repealed.
§ 1052. Basis established by the Revenue Act of 1932 or 1934 or by the Internal Revenue Code of 1939
§ 1053. Property acquired before
§ 1054. Certain stock of Federal National Mortgage Association
§ 1055. Redeemable ground rents
[§ 1056. Repealed.
[§ 1057. Repealed.
§ 1058. Transfers of securities under certain agreements
§ 1059. Corporate shareholder’s basis in stock reduced by nontaxed portion of extraordinary dividends
§ 1059A. Limitation on taxpayer’s basis or inventory cost in property imported from related persons
Special allocation rules for certain asset acquisitions
§ 1061. Partnership interests held in connection with performance of services
§ 1062. Cross references

[§ 1051. Repealed. Pub. L. 113–295, div. A, title II, § 221(a)(78), Dec. 19, 2014, 128 Stat. 4049]

§ 1052. Basis established by the Revenue Act of 1932 or 1934 or by the Internal Revenue Code of 1939

(a) Revenue Act of 1932

(b) Revenue Act of 1934

(Aug. 16, 1954, ch. 736, 68A Stat. 310.)

§ 1053. Property acquired before March 1, 1913

In the case of property acquired before March 1, 1913, if the basis otherwise determined under this subtitle, adjusted (for the period before March 1, 1913) as provided in section 1016, is less than the fair market value of the property as of March 1, 1913, then the basis for determining gain shall be such fair market value. In determining the fair market value of stock in a corporation as of March 1, 1913, due regard shall be given to the fair market value of the assets of the corporation as of that date.

(Aug. 16, 1954, ch. 736, 68A Stat. 311; Pub. L. 85–866, title I, § 47, Sept. 2, 1958, 72 Stat. 1642.)

§ 1054. Certain stock of Federal National Mortgage Association

In the case of a share of stock issued pursuant to section 303(c) of the Federal National Mortgage Association Charter Act (12 U.S.C., sec. 1718), the basis of such share in the hands of the initial holder shall be an amount equal to the capital contributions evidenced by such share reduced by the amount (if any) required by section 162(d) to be treated (with respect to such share) as ordinary and necessary expenses paid or incurred in carrying on a trade or business.

(Added Pub. L. 86–779, § 8(b), Sept. 14, 1960, 74 Stat. 1003.)

§ 1055. Redeemable ground rents

(a) Character

For purposes of this subtitle—

(1) a redeemable ground rent shall be treated as being in the nature of a mortgage, and

(2) real property held subject to liabilities under a redeemable ground rent shall be treated as held subject to liabilities under a mortgage.

(b) Application of subsection (a)

(1) In general

(2) Basis of holder

(3) Basis of reserved redeemable ground rent

For purposes of this subtitle, the term “redeemable ground rent” means only a ground rent with respect to which—

(1) there is a lease of land which is assignable by the lessee without the consent of the lessor and which (together with periods for which the lease may be renewed at the option of the lessee) is for a term in excess of 15 years,

(2) the leaseholder has a present or future right to terminate, and to acquire the entire interest of the lessor in the land, by payment of a determined or determinable amount, which right exists by virtue of State or local law and not because of any private agreement or privately created condition, and

(3) the lessor’s interest in the land is primarily a security interest to protect the rental payments to which the lessor is entitled under the lease.

(d) Cross reference

(Added Pub. L. 88–9, § 1(b), Apr. 10, 1963, 77 Stat. 7.)

[§ 1056. Repealed. Pub. L. 108–357, title VIII, § 886(b)(1)(A), Oct. 22, 2004, 118 Stat. 1641]

[§ 1057. Repealed. Pub. L. 105–34, title XI, § 1131(c)(2), Aug. 5, 1997, 111 Stat. 980]

§ 1058. Transfers of securities under certain agreements

(a) General rule

(b) Agreement requirements

In order to meet the requirements of this subsection, an agreement shall—

(1) provide for the return to the transferor of securities identical to the securities transferred;

(2) require that payments shall be made to the transferor of amounts equivalent to all interest, dividends, and other distributions which the owner of the securities is entitled to receive during the period beginning with the transfer of the securities by the transferor and ending with the transfer of identical securities back to the transferor;

(3) not reduce the risk of loss or opportunity for gain of the transferor of the securities in the securities transferred; and

(4) meet such other requirements as the Secretary may by regulation prescribe.

(Added Pub. L. 95–345, § 2(d)(1), Aug. 15, 1978, 92 Stat. 482.)

§ 1059. Corporate shareholder’s basis in stock reduced by nontaxed portion of extraordinary dividends

(a) General ruleIf any corporation receives any extraordinary dividend with respect to any share of stock and such corporation has not held such stock for more than 2 years before the dividend announcement date—

(1) Reduction in basis

(2) Amounts in excess of basis

(b) Nontaxed portionFor purposes of this section—

(1) In generalThe nontaxed portion of any dividend is the excess (if any) of—

(A) the amount of such dividend, over

(B) the taxable portion of such dividend.

(2) Taxable portionThe taxable portion of any dividend is—

(A) the portion of such dividend includible in gross income, reduced by

(B) the amount of any deduction allowable with respect to such dividend under section 243 1

1 So in original. Probably should be followed by a comma.

245, or 245A.

(1) In general

(2) Threshold percentageThe term “threshold percentage” means—

(A) 5 percent in the case of stock which is preferred as to dividends, and

(B) 10 percent in the case of any other stock.

(3) Aggregation of dividends

(A) Aggregation within 85-day periodAll dividends—

(i) which are received by the taxpayer (or a person described in subparagraph (C)) with respect to any share of stock, and

(ii) which have ex-dividend dates within the same period of 85 consecutive days,

shall be treated as 1 dividend.

(B) Aggregation within 1 year where dividends exceed 20 percent of adjusted basisAll dividends—

(i) which are received by the taxpayer (or a person described in subparagraph (C)) with respect to any share of stock, and

(ii) which have ex-dividend dates during the same period of 365 consecutive days,

shall be treated as extraordinary dividends if the aggregate of such dividends exceeds 20 percent of the taxpayer’s adjusted basis in such stock (determined without regard to this section).

(i) the basis of such stock in the hands of such person is determined in whole or in part by reference to the basis of such stock in the hands of the taxpayer, or

(ii) the basis of such stock in the hands of the taxpayer is determined in whole or in part by reference to the basis of such stock in the hands of such person.

(4) Fair market value determination

(d) Special rulesFor purposes of this section—

(1) Time for reduction

(2) Distributions in kind

(3) Determination of holding period

(4) Ex-dividend date

(5) Dividend announcement date

(6) Exception where stock held during entire existence of corporation

(A) In generalSubsection (a) shall not apply to any extraordinary dividend with respect to any share of stock of a corporation if—

(i) such stock was held by the taxpayer during the entire period such corporation was in existence, and

(ii) except as provided in regulations, no earnings and profits of such corporation were attributable to transfers of property from (or earnings and profits of) a corporation which is not a qualified corporation.

(B) Qualified corporationFor purposes of subparagraph (A), the term “qualified corporation” means any corporation (including a predecessor corporation)—

(i) with respect to which the taxpayer holds directly or indirectly during the entire period of such corporation’s existence at least the same ownership interest as the taxpayer holds in the corporation distributing the extraordinary dividend, and

(ii) which has no earnings and profits—(I) which were earned by, or(II) which are attributable to gain on property which accrued during a period the corporation holding the property was,

a corporation not described in clause (i).

(e) Special rules for certain distributions

(1) Treatment of partial liquidations and certain redemptionsExcept as otherwise provided in regulations—

(A) RedemptionsIn the case of any redemption of stock—

(i) which is part of a partial liquidation (within the meaning of section 302(e)) of the redeeming corporation,

(ii) which is not pro rata as to all shareholders, or

(iii) which would not have been treated (in whole or in part) as a dividend if—(I) any options had not been taken into account under section 318(a)(4), or(II) section 304(a) had not applied,

any amount treated as a dividend with respect to such redemption shall be treated as an extraordinary dividend to which paragraphs (1) and (2) of subsection (a) apply without regard to the period the taxpayer held such stock. In the case of a redemption described in clause (iii), only the basis in the stock redeemed shall be taken into account under subsection (a).

(B) Reorganizations, etc.

(2) Qualifying dividends

(A) In general

(B) ExceptionSubparagraph (A) shall not apply to any portion of a dividend which is attributable to earnings and profits which—

(i) were earned by a corporation during a period it was not a member of the affiliated group, or

(ii) are attributable to gain on property which accrued during a period the corporation holding the property was not a member of the affiliated group.

(3) Qualified preferred dividends

(A) In generalIn the case of 1 or more qualified preferred dividends with respect to any share of stock—

(i) this section shall not apply to such dividends if the taxpayer holds such stock for more than 5 years, and

(ii) if the taxpayer disposes of such stock before it has been held for more than 5 years, the aggregate reduction under subsection (a)(1) with respect to such dividends shall not be greater than the excess (if any) of—(I) the qualified preferred dividends paid with respect to such stock during the period the taxpayer held such stock, over(II) the qualified preferred dividends which would have been paid during such period on the basis of the stated rate of return.

(B) Rate of returnFor purposes of this paragraph—

(i) Actual rate of returnThe actual rate of return shall be the rate of return for the period for which the taxpayer held the stock, determined—(I) by only taking into account dividends during such period, and(II) by using the lesser of the adjusted basis of the taxpayer in such stock or the liquidation preference of such stock.

(ii) Stated rate of return

(i) Qualified preferred dividendThe term “qualified preferred dividend” means any fixed dividend payable with respect to any share of stock which—(I) provides for fixed preferred dividends payable not less frequently than annually, and(II) is not in arrears as to dividends at the time the taxpayer acquires the stock.

Such term shall not include any dividend payable with respect to any share of stock if the actual rate of return on such stock exceeds 15 percent.

(ii) Holding period

(f) Treatment of dividends on certain preferred stock

(1) In general

(2) Disqualified preferred stockFor purposes of this subsection, the term “disqualified preferred stock” means any stock which is preferred as to dividends if—

(A) when issued, such stock has a dividend rate which declines (or can reasonably be expected to decline) in the future,

(B) the issue price of such stock exceeds its liquidation rights or its stated redemption price, or

(C)

(i) to avoid the other provisions of this section, and

(ii) to enable corporate shareholders to reduce tax through a combination of dividend received deductions and loss on the disposition of the stock.

(g) RegulationsThe Secretary shall prescribe such regulations as may be appropriate to carry out the purposes of this section, including regulations—

(1) providing for the application of this section in the case of stock dividends, stock splits, reorganizations, and other similar transactions, in the case of stock held by pass-thru entities, and in the case of consolidated groups, and

(2) providing that the rules of subsection (f) shall apply in the case of stock which is not preferred as to dividends in cases where stock is structured to avoid the purposes of this section.

(Added Pub. L. 98–369, div. A, title I, § 53(a), July 18, 1984, 98 Stat. 565; amended Pub. L. 99–514, title VI, § 614(a)–(e), Oct. 22, 1986, 100 Stat. 2251–2253; Pub. L. 100–647, title I, § 1006(c), Nov. 10, 1988, 102 Stat. 3393; Pub. L. 101–239, title VII, § 7206(a), Dec. 19, 1989, 103 Stat. 2336; Pub. L. 105–34, title X, §§ 1011(a)–(c), 1013(b), title XVI, § 1604(d)(1), Aug. 5, 1997, 111 Stat. 912, 913, 918, 1098; Pub. L. 105–206, title VI, § 6010(b), July 22, 1998, 112 Stat. 813; Pub. L. 113–295, div. A, title II, § 221(a)(41)(G), Dec. 19, 2014, 128 Stat. 4044; Pub. L. 115–97, title I, § 14101(c)(2), Dec. 22, 2017, 131 Stat. 2191; Pub. L. 115–141, div. U, title IV, § 401(a)(169), Mar. 23, 2018, 132 Stat. 1192.)

§ 1059A. Limitation on taxpayer’s basis or inventory cost in property imported from related persons

(a) In general

If any property is imported into the United States in a transaction (directly or indirectly) between related persons (within the meaning of section 482), the amount of any costs—

(1) which are taken into account in computing the basis or inventory cost of such property by the purchaser, and

(2) which are also taken into account in computing the customs value of such property,

shall not, for purposes of computing such basis or inventory cost for purposes of this chapter, be greater than the amount of such costs taken into account in computing such customs value.

(b) Customs value; import

For purposes of this section—

(1) Customs value

(2) Import

(Added Pub. L. 99–514, title XII, § 1248(a), Oct. 22, 1986, 100 Stat. 2584.)

Special allocation rules for certain asset acquisitions

(a) General rule

In the case of any applicable asset acquisition, for purposes of determining both—

(1) the transferee’s basis in such assets, and

(2) the gain or loss of the transferor with respect to such acquisition,

the consideration received for such assets shall be allocated among such assets acquired in such acquisition in the same manner as amounts are allocated to assets under section 338(b)(5). If in connection with an applicable asset acquisition, the transferee and transferor agree in writing as to the allocation of any consideration, or as to the fair market value of any of the assets, such agreement shall be binding on both the transferee and transferor unless the Secretary determines that such allocation (or fair market value) is not appropriate.

(b) Information required to be furnished to Secretary

Under regulations, the transferor and transferee in an applicable asset acquisition shall, at such times and in such manner as may be provided in such regulations, furnish to the Secretary the following information:

(1) The amount of the consideration received for the assets which is allocated to section 197 intangibles.

(2) Any modification of the amount described in paragraph (1).

(3) Any other information with respect to other assets transferred in such acquisition as the Secretary deems necessary to carry out the provisions of this section.

For purposes of this section, the term “applicable asset acquisition” means any transfer (whether directly or indirectly)—

(1) of assets which constitute a trade or business, and

(2) with respect to which the transferee’s basis in such assets is determined wholly by reference to the consideration paid for such assets.

A transfer shall not be treated as failing to be an applicable asset acquisition merely because section 1031 applies to a portion of the assets transferred.

(d) Treatment of certain partnership transactions

In the case of a distribution of partnership property or a transfer of an interest in a partnership—

(1) the rules of subsection (a) shall apply but only for purposes of determining the value of section 197 intangibles for purposes of applying section 755, and

(2) if section 755 applies, such distribution or transfer (as the case may be) shall be treated as an applicable asset acquisition for purposes of subsection (b).

(e) Information required in case of certain transfers of interests in entities

(1) In general

If—

(A) a person who is a 10-percent owner with respect to any entity transfers an interest in such entity, and

(B) in connection with such transfer, such owner (or a related person) enters into an employment contract, covenant not to compete, royalty or lease agreement, or other agreement with the transferee,

such owner and the transferee shall, at such time and in such manner as the Secretary may prescribe, furnish such information as the Secretary may require.

(2) 10-percent owner

For purposes of this subsection—

(A) In general

(B) Constructive ownership

(3) Related person

(f) Cross reference

(Added Pub. L. 99–514, title VI, § 641(a), Oct. 22, 1986, 100 Stat. 2282; amended Pub. L. 100–647, title I, § 1006(h)(1), (2), (3)(B), Nov. 10, 1988, 102 Stat. 3410; Pub. L. 101–508, title XI, § 11323(a), (b)(1), Nov. 5, 1990, 104 Stat. 1388–464; Pub. L. 103–66, title XIII, § 13261(e), Aug. 10, 1993, 107 Stat. 539.)

§ 1061. Partnership interests held in connection with performance of services

(a) In generalIf one or more applicable partnership interests are held by a taxpayer at any time during the taxable year, the excess (if any) of—

(1) the taxpayer’s net long-term capital gain with respect to such interests for such taxable year, over

(2) the taxpayer’s net long-term capital gain with respect to such interests for such taxable year computed by applying paragraphs (3) and (4) of sections 1

1 So in original. Probably should be “section”.

1222 by substituting “3 years” for “1 year”,

shall be treated as short-term capital gain, notwithstanding section 83 or any election in effect under section 83(b).

(b) Special rule

(1) In general

(2) Applicable trade or businessThe term “applicable trade or business” means any activity conducted on a regular, continuous, and substantial basis which, regardless of whether the activity is conducted in one or more entities, consists, in whole or in part, of—

(A) raising or returning capital, and

(B) either—

(i) investing in (or disposing of) specified assets (or identifying specified assets for such investing or disposition), or

(ii) developing specified assets.

(3) Specified asset

(4) ExceptionsThe term “applicable partnership interest” shall not include—

(A) any interest in a partnership directly or indirectly held by a corporation, or

(B) any capital interest in the partnership which provides the taxpayer with a right to share in partnership capital commensurate with—

(i) the amount of capital contributed (determined at the time of receipt of such partnership interest), or

(ii) the value of such interest subject to tax under section 83 upon the receipt or vesting of such interest.

(5) Third party investorThe term “third party investor” means a person who—

(A) holds an interest in the partnership which does not constitute property held in connection with an applicable trade or business; and

(B) is not (and has not been) actively engaged, and is (and was) not related to a person so engaged, in (directly or indirectly) providing substantial services described in paragraph (1) for such partnership or any applicable trade or business.

(d) Transfer of applicable partnership interest to related person

(1) In generalIf a taxpayer transfers any applicable partnership interest, directly or indirectly, to a person related to the taxpayer, the taxpayer shall include in gross income (as short term capital gain) the excess (if any) of—

(A) so much of the taxpayer’s long-term capital gains with respect to such interest for such taxable year attributable to the sale or exchange of any asset held for not more than 3 years as is allocable to such interest, over

(B) any amount treated as short term capital gain under subsection (a) with respect to the transfer of such interest.

(2) Related personFor purposes of this paragraph, a person is related to the taxpayer if—

(A) the person is a member of the taxpayer’s family within the meaning of section 318(a)(1), or

(B) the person performed a service within the current calendar year or the preceding three calendar years in any applicable trade or business in which or for which the taxpayer performed a service.

(e) Reporting

(f) Regulations

(Added Pub. L. 115–97, title I, § 13309(a)(2), Dec. 22, 2017, 131 Stat. 2130.)

§ 1062. Cross references

(1) For nonrecognition of gain in connection with the transfer of obsolete vessels to the Maritime Administration under chapter 573 of title 46, United States Code, see section 57307 of title 46.

(2) For recognition of gain or loss in connection with the construction of new vessels, see chapter 533 of title 46, United States Code.

(Aug. 16, 1954, ch. 736, 68A Stat. 311, § 1054; renumbered § 1055, Pub. L. 86–779, § 8(b), Sept. 14, 1960, 74 Stat. 1003; renumbered § 1056, Pub. L. 88–9, § 1(b), Apr. 10, 1963, 77 Stat. 7; renumbered § 1057, Pub. L. 94–455, title II, § 212(a)(1), Oct. 4, 1976, 90 Stat. 1545; renumbered § 1058, Pub. L. 94–455, title X, § 1015(c), Oct. 4, 1976, 90 Stat. 1618; renumbered § 1059, Pub. L. 95–345, § 2(d)(1), Aug. 15, 1978, 92 Stat. 482; renumbered § 1060, Pub. L. 98–369, div. A, title I, § 53(a), July 18, 1984, 98 Stat. 565; renumbered § 1061 and amended, Pub. L. 99–514, title VI, § 641(a), title XVIII, § 1899A(27), Oct. 22, 1986, 100 Stat. 2282, 2960; Pub. L. 109–304, § 17(e)(5), Oct. 6, 2006, 120 Stat. 1708; renumbered § 1062, Pub. L. 115–97, title I, § 13309(a)(1), Dec. 22, 2017, 131 Stat. 2130.)