(a) Scope. This section provides rules for determining the basis of the stock of an acquiring corporation as a result of a triangular reorganization. The definitions and nomenclature contained in § 1.358-6 apply to this section.
(b) General rules—(1) Forward triangular merger, triangular C reorganization, or triangular B reorganization. P adjusts its basis in the stock of S as a result of a forward triangular merger, triangular C reorganization, or triangular B reorganization under § 1.358-6(c) and (d), except that § 1.358-6 (c)(1)(ii) and (d)(2) do not apply. Instead, P adjusts such basis by taking into account the full amount of—
(i) T liabilities assumed by S or the amount of liabilities to which the T assets acquired by S are subject, and
(ii) The fair market value of any consideration not provided by P pursuant to the plan of reorganization.
(2) Reverse triangular merger. If P adjusts its basis in the T stock acquired as a result of a reverse triangular merger under § 1.358-6 (c)(2)(i) and (d), § 1.358-6 (c)(1)(ii) and (d)(2) do not apply. Instead, P adjusts such basis by taking into account the full amount of—
(i) T liabilities deemed assumed by S or the amount of liabilities to which the T assets deemed acquired by S are subject, and
(ii) The fair market value of any consideration not provided by P pursuant to the plan of reorganization.
(3) Excess loss accounts. Negative adjustments under this section may exceed P's basis in its S or T stock. The resulting negative amount is P's excess loss account in its S or T stock. See § 1.1502-19 for rules treating excess loss accounts as negative basis, and treating references to stock basis as including references to excess loss accounts.
(4) Application of other rules of law. If a transaction otherwise subject to this section is also a group structure change subject to § 1.1502-31, the provisions of § 1.1502-31 and not this section apply to determine stock basis. See § 1.1502-80(a) regarding the general applicability of other rules of law and a limitation on duplicative adjustments. See § 1.1502-80(d) for the non-application of section 357(c) to P.
(5) Examples. The rules of this paragraph (b) are illustrated by the following examples. For purposes of these examples, P, S, and T are domestic corporations, P and S file consolidated returns, P owns all of the only class of S stock, the P stock exchanged in the transaction satisfies the requirements of the applicable triangular reorganization provisions, the facts set forth the only corporate activity, and tax liabilities are disregarded.
(a) Facts. T has assets with an aggregate basis of $60 and fair market value of $100. T's assets are subject to $70 of liabilities. Pursuant to a plan, P forms S with $5 of cash (which S retains), and T merges into S. In the merger, the T shareholders receive P stock worth $30 in exchange for their T stock. The transaction is a reorganization to which sections 368 (a)(1)(A) and (a)(2)(D) apply.
(b) Basis adjustment. Under § 1.358-6, P adjusts its $5 basis in the S stock as if P had acquired the T assets with a carryover basis under section 362 and transferred these assets to S in a transaction in which P determines its basis in the S stock under section 358. Under the rules of this section, the limitation described in § 1.358-6(c)(1)(ii) does not apply. Thus, P adjusts its basis in the S stock by -$10 (the aggregate adjusted basis of T's assets decreased by the amount of liabilities to which the T assets are subject). Consequently, as a result of the reorganization, P has an excess loss account of $5 in its S stock.
(a) Facts. T has assets with an aggregate basis of $10 and fair market value of $100 and no liabilities. S is an operating company with substantial assets that has been in existence for several years. P has a $5 basis in its S stock. Pursuant to a plan, T merges into S and the T shareholders receive $70 of P stock provided by P pursuant to the plan of reorganization and $30 of cash provided by S in exchange for their T stock. The transaction is a reorganization to which sections 368 (a)(1)(A) and (a)(2)(D) apply.
(b) Basis adjustment. Under § 1.358-6, P adjusts its $5 basis in the S stock as if P had acquired the T assets with a carryover basis under section 362 and transferred these assets to S in a transaction in which P determines its basis in the S stock under section 358. Under the rules of this section, the limitation described in § 1.358-6(d)(2) does not apply. Thus, P adjusts its basis in the S stock by -$20 (the aggregate adjusted basis of T's assets decreased by the fair market value of the consideration provided by S). As a result of the reorganization, P has an excess loss account of $15 in its S stock.
(c) Appreciated asset. The facts are the same as in paragraph (a) of this Example 2, except that in the reorganization S provides an asset with a $20 adjusted basis and $30 fair market value instead of $30 cash. The basis is adjusted in the same manner as in paragraph (b) of this Example 2. In addition, because S recognizes a $10 gain from the asset under section 1001, P's basis in its S stock is increased under § 1.1502-32(b) by S's $10 gain. Consequently, as a result of the reorganization, P has an excess loss account of $5 in its S stock. (The results would be the same if the appreciated asset provided by S was P stock with respect to which S recognized gain. See § 1.1032-2(c)).
(a) Facts. T has assets with an aggregate basis of $60 and fair market value of $100. T's assets are subject to $70 of liabilities. P owns all of the only class of S stock. P has a $5 basis in its S stock. Pursuant to a plan, S merges into T with T surviving. In the merger, the T shareholders exchange their T stock for $2 cash from P and $28 worth of P stock provided by P pursuant to the plan. The transaction is a reorganization to which sections 368 (a)(1)(A) and (a)(2)(E) apply.
(b) Basis adjustment. Under § 1.358-6, P's basis in the T stock acquired equals its $5 basis in its S stock immediately before the transaction adjusted by the $60 basis in the T assets deemed transferred, and the $70 of liabilities to which the T assets are subject. Under the rules of this section, the limitation described in § 1.358-6(c)(1)(ii) does not apply. Consequently, P has an excess loss account of $5 in its T stock as a result of the transaction.
(c) Effective/applicability date. This section applies to reorganizations occurring on or after December 21, 1995. However, paragraph (b)(4) of this section applies to reorganizations occurring on or after September 17, 2008.
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