[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: 26CFR1.1082-5]

[Page 201-202]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.1082-5  Basis of property acquired by shareholder upon tax-free 
distribution under section 1081(c) (1) or (2).

    (a) Stock or securities. If there was distributed to a shareholder 
in a corporation which is a registered holding company or a majority-
owned subsidiary company, stock or securities (other than stock or 
securities which are nonexempt property), and if by virtue of section 
1081 (c)(1) no gain was recognized to the shareholder upon such 
distribution, then the basis of the stock in respect of which the 
distribution was made must be apportioned between such stock and the 
stock or securities so distributed to the shareholder. The basis of the 
old shares and the stock or securities received upon the distribution 
shall be determined in accordance with the following rules:
    (1) If the stock or securities received upon the distribution 
consist solely of stock in the distributing corporation and the stock 
received is all of substantially the same character and preference as 
the stock in respect of which the distribution is made, the basis of 
each share will be the quotient of the cost or other basis of the old 
shares of stock divided by the total number of the old and the new 
shares.
    (2) If the stock or securities received upon the distribution are in 
whole or in part stock in a corporation other than the distributing 
corporation, or are in whole or in part stock of a character or 
preference materially different from the stock in respect of which the 
distribution is made, or if the distribution consists in whole or in 
part of securities other than stock, the cost or other basis of the 
stock in respect of which the distribution is made shall be apportioned 
between such stock and the stock or securities distributed in 
proportion, as nearly as may be, to the respective values of each class 
of stock or security, old and new, at the time of such distribution, and 
the basis of each share of stock or unit of security will

[[Page 202]]

be the quotient of the cost or other basis of the class of stock or 
security to which such share or unit belongs, divided by the number of 
shares or units in the class. Within the meaning of this subparagraph, 
stocks or securities in one corporation are different in class from 
stocks or securities in another corporation, and, in general, any 
material difference in character or preference or terms sufficient to 
distinguish one stock or security from another stock or security, so 
that different values may properly be assigned thereto, will constitute 
a difference in class.

    (b) Stock rights. If there was distributed to a shareholder in a 
corporation rights to acquire common stock in a second corporation, and 
if by virtue of section 1081 (c)(2) no gain was recognized to the 
shareholder upon such distribution, then the basis of the stock in 
respect of which the distribution was made must be apportioned between 
such stock and the stock rights so distributed to the shareholder. The 
basis of such stock and the stock rights received upon the distribution 
shall be determined in accordance with the following:

    (1) The cost or other basis of the stock in respect of which the 
distribution is made shall be apportioned between such stock and the 
stock rights distributed, in proportion to the respective values thereof 
at the time the rights are issued.

    (2) The basis for determining gain or loss from the sale of a right, 
or from the sale of a share of stock in respect of which the 
distribution is made, will be the quotient of the cost or other basis, 
properly adjusted, assigned to the rights or the stock, divided, as the 
case may be, by the number of rights acquired or by the number of shares 
of such stock held.

    (c) Cross reference. As to the basis of stock or securities 
distributed by one member of a system group to another member of the 
same system group, see Sec. 1.1082-6.