Non-Applicability of Section 357© to Consolidated Groups
Key claim: When one member of a corporate tax group transfers assets to another member that assumes some of its debts, the transferor no longer has to cut its tax basis in the stock it receives because of those assumed liabilities.
Abstract
(Rule · Treasury Department, Internal Revenue Service) This document contains final regulations clarifying that, in the case of certain transfers between members of a consolidated group, a transferee’s assumption of certain liabilities will not reduce the transferor’s basis in the transferee’s stock received in the transfer. These final regulations affect consolidated groups and their members.
Why this matters
Section 357© ordinarily forces a shareholder to recognize gain (or reduce stock basis) when transferred liabilities exceed asset basis, but applying it inside a consolidated group double-counts debt that the group already treats as internal. This final rule narrows a technical trap for affiliated corporations restructuring assets among members, with no change for standalone taxpayers or non-consolidated transfers.