US final regulations clarify stock basis in consolidated-group transfers

Treasury Decision 10059 amends Treasury Regulation section 1.1502-80(d). That consolidated-return provision generally disapplies Internal Revenue Code section 357(c) to intercompany transactions covered by section 1.1502-13. The amendment makes explicit that this does not switch off section 358(d)(2)'s exception when working out the transferor's basis in stock received in a section 351 transfer.^[1][2]

The distinction matters because section 358(a) starts from the basis of the property exchanged, while section 358(d)(1) normally treats assumed liabilities as money received, reducing that basis. Section 357(c)(3)(A) identifies liabilities whose payment would give rise to a deduction or would fall under section 736(a). But paragraph (B) removes the exception to the extent incurring a liability created or increased the basis of property. The final regulation expressly carries that targeted exclusion into the stock-basis calculation; it is not permission to disregard every liability.^[1][2]

In the official example, a member transfers assets with an aggregate basis of $30 and liabilities of $40 to a newly formed subsidiary. Of those liabilities, $5 meets the specified exception. Only $35 therefore reduces the transferor's stock basis, producing a $5 excess loss account. Section 357(c) does not cause gain recognition on the transfer. For MNE groups restructuring their US consolidated operations, absence of immediate section 357(c) gain and the resulting stock-basis position are consequently separate questions.^[1]

The consolidated rule does not apply if either party becomes a nonmember as part of the same plan or arrangement. The test includes whether the parties cease to share a consolidated group and extends, where relevant, to predecessors and successors. The complete restructuring plan therefore matters, not only the contribution viewed in isolation.^[1]

The public-inspection decision adopts the 2024 proposal with non-substantive revisions. It becomes effective on Federal Register publication, scheduled for 16 October but not yet completed at this review. Applicability covers transactions in consolidated return years whose unextended return due date falls after the actual publication date. This follows section 1503(a)'s consolidated-return framework; it is not simply a test of whether a transfer takes place after 15 October.^[1][2]