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26 CFR 601.105: Examination of returns and claims for refund, credit or abatement; determination of correct tax liability.
(Also: Part I §§ 362, 1.362âeuro?1, 351, 1.351âeuro?3, 1.358âeuro?6.)
Basis In Stock Acquired In Transferred Basis Transactions
SECTION 1. PURPOSE
This revenue procedure provides procedures that a corporation (Acquiring) may use to establish its basis in stock of another corporation (Target) when it acquires the Target stock in a transferred basis transaction.
SECTION 2. BACKGROUND
The Internal Revenue Service has long held that the optimal method for establishing basis in stock acquired in a reorganization described in § 368(a)(1)(B) of the Internal Revenue Code (B reorganizations) is a survey of the surrendering Target shareholders. The Service has also long recognized that it will not be practical to survey all surrendering Target shareholders in all such cases, particularly where Target stock is publicly traded. To mitigate this concern, the Service published Rev. Proc. 81âeuro?70, 1981âeuro?2 C.B. 729, which provides survey procedures, as well as procedures for the use of statistical sampling and estimation of basis, for establishing basis in stock acquired in a B reorganization if a survey of all surrendering shareholders would not be practical or feasible.
Since the publication of Rev. Proc. 81âeuro?70, however, the operation of the securities market has changed significantly. Foremost among the changes has been the pervasive shift to the holding of stock in street name, that is, the holding of stock by nominees, typically clearinghouses or other financial institutions, on behalf of their members or customers. Because these nominee holders are subject to confidentiality and other restrictions, it is often difficult, if not impossible, for corporations acquiring stock in a B reorganization to obtain the information necessary to establish basis in acquired stock using the procedures prescribed by Rev. Proc. 81âeuro?70. Furthermore, the difficulties associated with determining basis in stock acquired in a B reorganization can also be present when determining basis in stock acquired in any transferred basis transaction.
In 2004, the Service undertook a study of the need for revised and further guidance in the determination of basis of shares acquired in transferred basis transactions. See Notice 2004âeuro?44, 2004âeuro?2 C.B. 32. The comments received in response to Notice 2004âeuro?44 were reflected in Notice 2009âeuro?4, 2009âeuro?2 I.R.B. 251, which...