[Code of Federal Regulations]
[Title 26, Volume 11]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.1051-1]

[Page 171-172]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.1051-1  Basis of property acquired during affiliation.

    (a)(1) The basis of property acquired by a corporation during a 
period of affiliation from a corporation with which it was affiliated 
shall be the same as it would be in the hands of the corporation from 
which acquired. This rule is applicable if the basis of the property is 
material in determining tax liability for any year, whether a separate 
return or a consolidated return is made in respect of such year. For the 
purpose of this section, the term period of affiliation means the period 
during which such corporations were affiliated (determined in accordance 
with the law applicable thereto), but does not include any taxable year 
beginning on or after January 1, 1922, unless a consolidated return was 
made, nor any taxable year after the taxable year 1928.

[[Page 172]]

    (2) The application of subparagraph (1) of this paragraph may be 
illustrated by the following example:

    Example: The X Corporation, the Y Corporation, and the Z Corporation 
were affiliated for the taxable year 1920. During that year the X 
Corporation transferred assets to the Y Corporation for $120,000 cash, 
and the Y Corporation in turn transferred the assets during the same 
year to the Z Corporation for $130,000 cash. The assets were acquired by 
the X Corporation in 1916 at a cost of $100,000. The basis of the assets 
in the hands of the Z Corporation is $100,000.

    (b) The basis of property acquired by a corporation during any 
period, in the taxable year 1929 or any subsequent taxable year, in 
respect of which a consolidated return was made or was required under 
the regulations governing the making of consolidated returns, shall be 
determined in accordance with such regulations. The basis in the case of 
property held by a corporation during any period, in the taxable year 
1929 or any subsequent taxable year, in respect of which a consolidated 
return is made or is required under the regulations governing the making 
of consolidated returns, shall be adjusted in respect of any items 
relating to such period in accordance with such regulations.
    (c) Except as otherwise provided in the regulations promulgated 
under section 1502 of the Internal Revenue Code of 1954 or the 
regulations under section 141 of the Internal Revenue Code of 1939 or 
the Revenue Act of 1938 (52 Stat. 447), 1936 (49 Stat. 1652), 1934 (48 
Stat. 683), 1932 (47 Stat. 169), or 1928 (45 Stat. 791), the basis of 
property after a consolidated return period shall be the same as the 
basis immediately prior to the close of such period.