26 CFR § 1.732-3 - Corresponding adjustment to basis of assets of a distributed corporation controlled by a corporate partner.
(a) Determination of control. The determination of whether a corporate partner that is a member of a consolidated group has control of a distributed corporation for purposes of section 732(f) shall be made by applying the special aggregate stock ownership rules of § 1.1502-34.
(b) Aggregation of basis within consolidated group. With respect to distributed stock of a corporation, if the following two conditions are met, then section 732(f) shall apply only to the extent that the partnership's adjusted basis in the distributed stock immediately before the distribution exceeds the aggregate basis of the distributed stock of the corporation in the hands of corporate partners that are members of the same consolidated group (as defined in § 1.1502-1(h)) immediately after the distribution:
(1) Two or more of the corporate partners receive a distribution of stock in another corporation; and
(2) The corporation, the stock of which was distributed by the partnership, is or becomes a member of the distributee partners' consolidated group following the distribution.
(c) Application of section 732(f) to Gain Elimination Transactions -
(1) General rule. In the event of a Gain Elimination Transaction, section 732(f) shall apply as though the Corporate Partner acquired control (as defined in section 732(f)(5)) of the Distributed Corporation immediately before the Gain Elimination Transaction.
(2) Definitions. The following definitions apply for purposes of this paragraph (c):
(i) Corporate Partner. The term Corporate Partner means a person that is classified as a corporation for federal income tax purposes and that holds or acquires an interest in a partnership.
(ii) Stock. The term Stock includes other equity interests, including options, warrants, and similar interests.
(iii) Distributed Stock. The term Distributed Stock means Stock distributed by a partnership to a Corporate Partner, or Stock the basis of which is determined by reference to the basis of such Stock. Distributed Stock also includes Stock owned directly or indirectly by a Distributed Corporation if the basis of such Stock has been reduced pursuant to section 732(f).
(iv) Distributed Corporation. The term Distributed Corporation means the issuer of Distributed Stock (or, in the case of an option, the issuer of the Stock into which the option is exercisable).
(v) Gain Elimination Transaction. The term Gain Elimination Transaction means a transaction in which Distributed Stock is disposed of and less than all of the gain is recognized unless -
(A) The transferor of the Distributed Stock receives in exchange Stock or a partnership interest that is exchanged basis property (as defined in section 7701(a)(44)) with respect to the Distributed Stock; or
(B) A transferee corporation holds the Distributed Stock as transferred basis property (as defined in section 7701(a)(43)) with respect to the transferor corporation's gain. A Gain Elimination Transaction includes (without limitation) a reorganization under section 368(a) in which the Corporate Partner and the Distributed Corporation combine, and a distribution of the Distributed Stock by the Corporate Partner to which section 355(c)(1) or 361(c)(1) applies.
(d) Tiered partnerships. The rules of this section shall apply to tiered partnerships in a manner that is consistent with the purposes of section 732(f).
(e) Applicability date. This section applies to transactions occurring on or after June 8, 2018.