§961 — Adjustments to basis of stock in controlled foreign corporations and of other property
7 citing cases
Statute Text — 26 U.S.C. §961
Under regulations prescribed by the Secretary, the basis of a United States shareholder’s stock in a controlled foreign corporation, and the basis of property of a United States shareholder by reason of which he is considered under section 958(a)(2) as owning stock of a controlled foreign corporation, shall be increased by the amount required to be included in his gross income under section 951(a) with respect to such stock or with respect to such property, as the case may be, but only to the extent to which such amount was included in the gross income of such United States shareholder. In the case of a United States shareholder who has made an election under section 962 for the taxable year, the increase in basis provided by this subsection shall not exceed an amount equal to the amount of tax paid under this chapter with respect to the amounts required to be included in his gross income under section 951(a).
Under regulations prescribed by the Secretary, the adjusted basis of stock or other property with respect to which a United States shareholder or a United States person receives an amount which is excluded from gross income under section 959(a) shall be reduced by the amount so excluded. In the case of a United States shareholder who has made an election under section 962 for any prior taxable year, the reduction in basis provided by this paragraph shall not exceed an amount equal to the amount received which is excluded from gross income under section 959(a) after the application of section 962(d).
To the extent that an amount excluded from gross income under section 959(a) exceeds the adjusted basis of the stock or other property with respect to which it is received, the amount shall be treated as gain from the sale or exchange of property.
Under regulations prescribed by the Secretary, if a United States shareholder is treated under section 958(a)(2) as owning stock in a controlled foreign corporation which is owned by another controlled foreign corporation, then adjustments similar to the adjustments provided by subsections (a) and (b) shall be made to—
the basis of such stock, and
the basis of stock in any other controlled foreign corporation by reason of which the United States shareholder is considered under section 958(a)(2) as owning the stock described in paragraph (1),
but only for the purposes of determining the amount included under section 951 in the gross income of such United States shareholder (or any other United States shareholder who acquires from any person any portion of the interest of such United States shareholder by reason of which such shareholder was treated as owning such stock, but only to the extent of such portion, and subject to such proof of identity of such interest as the Secretary may prescribe by regulations). The preceding sentence shall not apply with respect to any stock to which a basis adjustment applies under subsection (a) or (b).
If a domestic corporation received a dividend from a specified 10-percent owned foreign corporation (as defined in section 245A) in any taxable year, solely for purposes of determining loss on any disposition of stock of such foreign corporation in such taxable year or any subsequent taxable year, the basis of such domestic corporation in such stock shall be reduced (but not below zero) by the amount of any deduction allowable to such domestic corporation under section 245A with respect to such stock except to the extent such basis was reduced under section 1059 by reason of a dividend for which such a deduction was allowable.
Treasury Regulations
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Treas. Reg. §1.961-1Increase in basis of stock in controlled foreign corporations and of other property
(a) Increase in basis—(1) In general. Except as provided in subparagraph (2) of this paragraph, the basis of a United States shareholder's—
(i) Stock in a controlled foreign corporation; or
(ii) Property (as defined in paragraph (b)(1) of this section) by reason of the ownership of which he is considered under section 958(a)(2) as owning stock in a controlled foreign corporation shall be increased under section 961(a), as of the last day in the taxable year of such corporation on which it is a controlled foreign corporation, by the amount required to be included with respect to such stock or such property in such shareholder's gross income under section 951(a) for his taxable year in which or with which such taxable year of such corporation ends. The increase in basis provided by the preceding sentence shall be made only to the extent to which such amount required to be included in gross income under section 951(a) was so included in gross income.
(2) Limitation on amount of increase in case of election under section 962. In the case of a United States shareholder who makes the election under section 962 for the taxable year, the amount of the increase in basis provided by subparagraph (1) of this paragraph shall not exceed the amount of United States tax paid in accordance with such election with respect to the amounts included in such shareholder's gross income under section 951(a) for such year (as determined under § 1.962-1).
(b) Rules of application—(1) Property defined. The property of a United States shareholder referred to in paragraph (a)(1)(ii) of this section shall consist of—
(i) Stock in a foreign corporation;
(ii) An interest in a foreign partnership; or
(iii) A beneficial interest in a foreign estate or trust (as defined in section 7701(a)(31)).
(2) Increase with respect to each share of stock. Any increase under paragraph (a) of this section in the basis of a United States shareholder's stock in a foreign corporation shall be made in the amount included in gross income under section 951(a) or in the amount of United States tax paid in accordance with an election under section 962, as the case may be, with respect to each share of such stock.
(c) Illustration. The application of this section may be illustrated by the following examples:
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Treas. Reg. §1.961-1(a)Increase in basis—(1) In general.
Increase in basis—(1) In general. Except as provided in subparagraph (2) of this paragraph, the basis of a United States shareholder's—
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Treas. Reg. §1.961-1(b)Rules of application—(1) Property defined.
Rules of application—(1) Property defined. The property of a United States shareholder referred to in paragraph (a)(1)(ii) of this section shall consist of—
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Treas. Reg. §1.961-1(c)Illustration.
Illustration. The application of this section may be illustrated by the following examples:
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Treas. Reg. §1.961-1(i)§1.961-1(i)
Stock in a foreign corporation;
(ii) An interest in a foreign partnership; or
(iii) A beneficial interest in a foreign estate or trust (as defined in section 7701(a)(31)).
(2) Increase with respect to each share of stock. Any increase under paragraph (a) of this section in the basis of a United States shareholder's stock in a foreign corporation shall be made in the amount included in gross income under section 951(a) or in the amount of United States tax paid in accordance with an election under section 962, as the case may be, with respect to each share of such stock.
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Treas. Reg. §1.961-2Reduction in basis of stock in foreign corporations and of other property
(a) Reduction in basis—(1) In general. Except as provided in subparagraph (2) of this paragraph, the adjusted basis of a United States person's—
(i) Stock in a foreign corporation;
(ii) Interest in a foreign partnership; or
(iii) Beneficial interest in a foreign estate or trust (as defined in section 7701(a)(31)),
with respect to which such United States person receives an amount which is excluded from gross income under section 959(a), shall be reduced under section 961(b), as of the time such person receives such excluded amount, by the sum of the amount so excluded and any income, war profits, or excess profits taxes imposed by any foreign country or possession of the United States on or with respect to the earnings and profits attributable to such excluded amount when such earnings and profits were actually distributed directly or indirectly through a chain of ownership described in section 958(a)(2).
(2) Limitation on amount of reduction in case of election under section 962. In the case of a distribution of earnings and profits attributable to amounts with respect to which an election under section 962 has been made, the amount of the reduction in basis provided by subparagraph (1) of this paragraph shall not exceed the sum of—
(i) The amount of such distribution which is excluded from gross income under section 959(a) after the application of section 962(d) and § 1.962-3; and
(ii) Any income, war profits, or excess profits taxes imposed by any foreign country or possession of the United States on or with respect to the earnings and profits attributable to such excluded amount when such earnings and profits were actually distributed directly or indirectly through a chain of ownership described in section 958(a)(2).
(b) Reduction with respect to each share of stock. Any reduction under paragraph (a) of this section in the adjusted basis of a United States person's stock in a foreign corporation shall be made with respect to each share of such stock in the sum of—
(1)(i) The amount excluded from gross income under section 959(a); or
(ii) The amount excluded from gross income under section 959(a) after the application of section 962(d) and § 1.962-3; and
(2) The amount of any income, war profits, or excess profits taxes imposed by any foreign country or possession of the United States on or with respect to the earnings and profits attributable to such excluded amount when such earnings and profits were actually distributed directly or indirectly through a chain of ownership described in section 958(a)(2).
(c) Amount in excess of basis. To the extent that the amount of the reduction in the adjusted basis of property provided by paragraph (a) of this section exceeds such adjusted basis, the amount shall be treated as gain from the sale or exchange of property.
(d) Illustration. The application of this section may be illustrated by the following examples:
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Treas. Reg. §1.961-2(a)Reduction in basis—(1) In general.
Reduction in basis—(1) In general. Except as provided in subparagraph (2) of this paragraph, the adjusted basis of a United States person's—
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Treas. Reg. §1.961-2(b)Reduction with respect to each share of stock.
Reduction with respect to each share of stock. Any reduction under paragraph (a) of this section in the adjusted basis of a United States person's stock in a foreign corporation shall be made with respect to each share of such stock in the sum of—
(1)(i) The amount excluded from gross income under section 959(a); or
(ii) The amount excluded from gross income under section 959(a) after the application of section 962(d) and § 1.962-3; and
(2) The amount of any income, war profits, or excess profits taxes imposed by any foreign country or possession of the United States on or with respect to the earnings and profits attributable to such excluded amount when such earnings and profits were actually distributed directly or indirectly through a chain of ownership described in section 958(a)(2).
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Treas. Reg. §1.961-2(c)Amount in excess of basis.
Amount in excess of basis. To the extent that the amount of the reduction in the adjusted basis of property provided by paragraph (a) of this section exceeds such adjusted basis, the amount shall be treated as gain from the sale or exchange of property.
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Treas. Reg. §1.961-2(d)Illustration.
Illustration. The application of this section may be illustrated by the following examples:
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Treas. Reg. §1.961-2(i)The amount of such distribution which is excluded from gross income under section 959(a) after the application of section 962(d) and § 1.
The amount of such distribution which is excluded from gross income under section 959(a) after the application of section 962(d) and § 1.962-3; and
(ii) Any income, war profits, or excess profits taxes imposed by any foreign country or possession of the United States on or with respect to the earnings and profits attributable to such excluded amount when such earnings and profits were actually distributed directly or indirectly through a chain of ownership described in section 958(a)(2).
7 Citing Cases
at 735-736 (“The United States Tax Court * * * is a continuation of the Tax Court of the United States as it existed prior to the date of enactment of this Act”.). 242 that no income can be allocated to a taxpayer under section 482 that a taxpayer could not receive. Even if petitioner were correct that L.E. Shunk Latex concluded
at 735-736, also provides: The United States Tax Court established under the amendment made by section 951 is a continuation ofthe Tax Court ofthe United States as it existed prior to the date ofenactment ofthis Act * * * no loss ofrights or powers, interruption ofjurisdiction, or prejudice to matters pending in the Tax Court oft
Section 961 provides that the basis of a U.S. shareholder’s stock in a controlled foreign corporation is increased by the amount included in the shareholder’s gross income under section 951. Section 961(b), however, provides that the basis of such stock shall be reduced by the amount actually received and excluded from gross income of the U.S. shar
961(k), 103 Stat. 500.] The criminal violations to which petitioner pled guilty were based upon his deposit of the four worthless checks into his account at Colonial Bank, as described above. The District Court accepted petitioner's guilty plea and sentenced him to a term in jail. It also ordered petitioner to make restitution to Colonial Bank