[Code of Federal Regulations]
[Title 26, Volume 4]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.307-2]

[Page 46-47]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.307-2  Exception.

    The basis of rights to buy stock which are excluded from gross 
income under section 305(a), shall be zero if the fair market value of 
such rights on the date of distribution is less than 15 percent of the 
fair market value of the old stock on that date, unless the shareholder 
elects to allocate part of the basis of the old stock to the rights as 
provided in paragraph (a) of Sec. 1.307-1.

[[Page 47]]

The election shall be made by a shareholder with respect to all the 
rights received by him in a particular distribution in respect of all 
the stock of the same class owned by him in the issuing corporation at 
the time of such distribution. Such election to allocate basis to rights 
shall be in the form of a statement attached to the shareholder's return 
for the year in which the rights are received. This election, once made, 
shall be irrevocable with respect to the rights for which the election 
was made. Any shareholder making such an election shall retain a copy of 
the election and of the tax return with which it was filed, in order to 
substantiate the use of an allocated basis upon a subsequent disposition 
of the stock acquired by exercise.

                         effects on corporation