26 U.S.C. § 307 — Basis of stock and stock rights acquired in distributions

(a) General rule. If a shareholder gets new stock, or rights to buy new stock, in a tax-free distribution under section 305(a), the basis (cost for tax purposes) of the old stock is split between the old stock and the new stock. Rules the Secretary writes control how to split it. (b) Exception for certain stock rights. (1) If a corporation gives out stock rights in a section 305(a) distribution, and those rights are worth less than 15% of the old stock's value at that time, the splitting rule in (a) does not apply. Instead, the rights get zero basis -- unless the shareholder elects, under (2), to split the basis the normal way instead. (2) To make that election, the shareholder must do so on a timely filed tax return (extensions count) for the year the rights were received, following the Secretary's rules. Once made, the election cannot be undone. (c) Cross reference. For the basis of stock and stock rights given out before June 22, 1954, see section 1052 instead.