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Internal Revenue Code, § 1367. Adjustments To Basis Of Stock Of Shareholders, Etc.

I.R.C. § 1367(a) General Rule
I.R.C. § 1367(a)(1) Increases In Basis
The basis of each shareholder's stock in an S corporation shall be increased for any period by the sum of the following items determined with respect to that shareholder for such period:
I.R.C. § 1367(a)(1)(A)
the items of income described in subparagraph (A) of section 1366(a)(1),
I.R.C. § 1367(a)(1)(B)
any nonseparately computed income determined under subparagraph (B) of section 1366(a)(1), and
I.R.C. § 1367(a)(1)(C)
the excess of the deductions for depletion over the basis of the property subject to depletion.
I.R.C. § 1367(a)(2) Decreases In Basis
The basis of each shareholder's stock in an S corporation shall be decreased for any period (but not below zero) by the sum of the following items determined with respect to the shareholder for such period:
I.R.C. § 1367(a)(2)(A)
distributions by the corporation which were not includible in the income of the shareholder by reason of section 1368,
I.R.C. § 1367(a)(2)(B)
the items of loss and deduction described in subparagraph (A) of section 1366(a)(1),
I.R.C. § 1367(a)(2)(C)
any nonseparately computed loss determined under subparagraph (B) of section 1366(a)(1),
I.R.C. § 1367(a)(2)(D)
any expense of the corporation not deductible in computing its taxable income and not properly chargeable to capital account, and
I.R.C. § 1367(a)(2)(E)
the amount of the shareholder's deduction for depletion for any oil and gas property held by the S corporation to the extent such deduction does not exceed the proportionate share of the adjusted basis of such property allocated to such shareholder under section 613A(c)(11)(B).
The decrease under subparagraph (B) by reason of a charitable contribution (as defined in section 170(c)) of property shall be the amount equal to the shareholder's pro rata share of the adjusted basis of such property.
I.R.C. § 1367(b) Special Rules
I.R.C. § 1367(b)(1) Income Items
An amount which is required to be included in the gross income of a shareholder and shown on his return shall be taken into account under subparagraph (A) or (B) of subsection (a)(1) only to the extent such amount is included in the shareholder's gross income on his return, increased or decreased by any adjustment of such amount in a redetermination of the shareholder's tax liability.
I.R.C. § 1367(b)(2) Adjustments In Basis Of Indebtedness
I.R.C. § 1367(b)(2)(A) Reduction Of Basis
If for any taxable year the amounts specified in subparagraphs (B), (C), (D), and (E) of subsection (a)(2) exceed the amount which reduces the shareholder's basis to zero, such excess shall be applied to reduce (but not below zero) the shareholder's basis in any indebtedness of the S corporation to the shareholder.
I.R.C. § 1367(b)(2)(B) Restoration Of Basis
If for any taxable year beginning after December 31, 1982, there is a reduction under subparagraph (A) in the shareholder's basis in the indebtedness of an S corporation to a shareholder, any net increase (after the application of paragraphs (1) and (2) of subsection (a)) for any subsequent taxable year shall be applied to restore such reduction in basis before any of it may be used to increase the shareholder's basis in the stock of the S corporation.
I.R.C. § 1367(b)(3) Coordination With Sections 165(g) And 166(d)
This section and section 1366 shall be applied before the application of sections 165(g) and 166(d) to any taxable year of the shareholder or the corporation in which the security or debt becomes worthless.
I.R.C. § 1367(b)(4) Adjustments In Case Of Inherited Stock
I.R.C. § 1367(b)(4)(A) In General
If any person acquires stock in an S corporation by reason of the death of a decedent or by bequest, devise, or inheritance, section 691 shall be applied with respect to any item of income of the S corporation in the same manner as if the decedent had held directly his pro rata share of such item.
I.R.C. § 1367(b)(4)(B) Adjustments To Basis
The basis determined under section 1014 of any stock in an S corporation shall be reduced by the portion of the value of the stock which is attributable to items constituting income in respect of the decedent.
(Added by Pub. L. 97-354, 2, Oct. 19, 1982, 96 Stat. 1679, and amended Pub. L. 98-369, div. A, title VII, 721(d), (w), 722(e)(2), July 18, 1984, 98 Stat. 967, 971, 974; Pub. L. 104-188, 1702, Aug. 20, 1996, 110 Stat. 1755; Pub. L. 109-280, title XII, Sec. 1203(a), Aug. 17, 2006, 120 Stat. 780; Pub. L. 110-343, div. C, title III, Sec. 307(a), Oct. 3, 2008, 122 Stat. 3765; Pub. L. 111-312, title VII, Sec. 752, Dec. 17, 2010, 124 Stat. 3296; Pub. L. 112-240, title III, Sec. 325, Jan. 2, 2013, 126 Stat. 2313; Pub. L. 113-295, Div. A, title I, Sec. 137(a), Dec. 19, 2014, 128 Stat. 4010; Pub. L. 114-113, Div. Q, title I, Sec. 115(a).)
BACKGROUND NOTES
AMENDMENTS
2015 - Subsec. (a)(2). Pub. L. 114-113, Div. Q, Sec. 115(a), amended par. (2) by striking the last sentence, which read as follows: “The preceding sentence shall not apply to contributions made in taxable years beginning after December 31, 2014.”
2014 - Subsec. (a)(2). Pub. L. 113-295, Div. A, Sec. 137(a), amended par. (2) by substituting “December 31, 2014” for “December 31, 2013”.
2013 - Subsec. (a)(2). Pub. L. 112-240, Sec. 325(a), amended par. (2) by substituting “December 31, 2013” for “December 31, 2011”.
2010 - Subsec. (a)(2). Pub. L. 111-312, Sec. 752(a), amended par. (2) by substituting “December 31, 2011” for “December 31, 2009”.
2008 - Subsec. (a)(2). Pub. L. 110-343, Div. C, Sec. 307(a), amended par. (2) by substituting “December 31, 2009” for “December 31, 2007”.
2006 - Subsec. (a)(2). Pub. L. 109-280, Sec. 1203(a), amended par. (2) by adding the flush sentence at the end.
1996--Subsec. (a)(2)(E). Pub. L. 104-188, 1702(h)(14), substituted “section 613A(c)(11)(B)” for “section 613A(c)(13)(B)”.
Subsec. (b)(4). Pub. L. 104-188, 1313(a), added par. (4).
1984--Subsec. (a)(2)(E). Pub. L. 98-369, 722(e)(2), substituted “for any oil and gas property held by the S corporation to the extent such deduction does not exceed the proportionate share of the adjusted basis of such property allocated to such shareholder under section 613A(c)(13)(B)” for “under section 611 with respect to oil and gas wells”.
Subsec. (b)(2)(B). Pub. L. 98-369, 721(w), substituted “for any taxable year beginning after December 31, 1982, there is” for “for any taxable year there is”.
Subsec. (b)(3). Pub. L. 98-369, 721(d), inserted “and 166(d)” in heading and text.
EFFECTIVE DATE OF 2015 AMENDMENT
Amendment by Pub. L. 114-113, Div. Q, Sec. 115(a), .effective for contributions made in taxable years beginning after December 31, 2014.
EFFECTIVE DATE OF 2014 AMENDMENT
Amendment by Div. A, Section 137(a) of Pub. L. 113-295 effective for contributions made in taxable years beginning after December 31, 2013
EFFECTIVE DATE OF 2013 AMENDMENT
Amendment by Section 325(a) of Pub. L. 112-240 effective for contributions made in taxable years beginning after December 31, 2011
EFFECTIVE DATE OF 2010 AMENDMENT
Amendment by Section 752(a) of Pub. L. 111-312 effective for contributions made in taxable years beginning after December 31, 2009.
EFFECTIVE DATE OF 2008 AMENDMENT
Amendment by Div. C, Section 307(a) of Pub. L. 110-343 effective for contributions made in taxable years beginning after December 31, 2007.
EFFECTIVE DATE OF 2006 AMENDMENT
Amendment by section 1203 of Pub. L. 109-280 effective for contributions made in taxable years beginning after December 31, 2005.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1313 of Pub. L. 104-188 effective in the case of decedents dying after the date of the enactment of this Act [August 20, 1996].
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 721(d), (w) of Pub. L. 98-369 effective as if included in the Subchapter S Revision Act of 1982, Pub. L. 97-354, see section 721(y)(1) of Pub. L. 98-369, set out as a note under section 1361 of this title.
Section 722(b)(3)(B) of Pub. L. 98-369 provided that: “The amendment made by paragraph (2) [amending this section] shall apply to taxable years beginning after December 31, 1982.”
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31, 1982, see section 6(a) of Pub. L. 97-354, set out as a note under section 1361 of this title.