§1367. Adjustments to basis of stock of shareholders, etc.

(a) General rule

(1) Increases in basis

The basis of each shareholder's stock in an S corporation shall be increased for any period by the sum of the following items determined with respect to that shareholder for such period:

(A) the items of income described in subparagraph (A) of section 1366(a)(1),

(B) any nonseparately computed income determined under subparagraph (B) of section 1366(a)(1), and

(C) the excess of the deductions for depletion over the basis of the property subject to depletion.

(2) Decreases in basis

The basis of each shareholder's stock in an S corporation shall be decreased for any period (but not below zero) by the sum of the following items determined with respect to the shareholder for such period:

(A) distributions by the corporation which were not includible in the income of the shareholder by reason of section 1368,

(B) the items of loss and deduction described in subparagraph (A) of section 1366(a)(1),

(C) any nonseparately computed loss determined under subparagraph (B) of section 1366(a)(1),

(D) any expense of the corporation not deductible in computing its taxable income and not properly chargeable to capital account, and

(E) the amount of the shareholder's deduction for depletion for any oil and gas property held by the S corporation to the extent such deduction does not exceed the proportionate share of the adjusted basis of such property allocated to such shareholder under section 613A(c)(11)(B).

The decrease under subparagraph (B) by reason of a charitable contribution (as defined in section 170(c)) of property shall be the amount equal to the shareholder's pro rata share of the adjusted basis of such property.

(b) Special rules

(1) Income items

An amount which is required to be included in the gross income of a shareholder and shown on his return shall be taken into account under subparagraph (A) or (B) of subsection (a)(1) only to the extent such amount is included in the shareholder's gross income on his return, increased or decreased by any adjustment of such amount in a redetermination of the shareholder's tax liability.

(2) Adjustments in basis of indebtedness

(A) Reduction of basis

If for any taxable year the amounts specified in subparagraphs (B), (C), (D), and (E) of subsection (a)(2) exceed the amount which reduces the shareholder's basis to zero, such excess shall be applied to reduce (but not below zero) the shareholder's basis in any indebtedness of the S corporation to the shareholder.

(B) Restoration of basis

If for any taxable year beginning after December 31, 1982, there is a reduction under subparagraph (A) in the shareholder's basis in the indebtedness of an S corporation to a shareholder, any net increase (after the application of paragraphs (1) and (2) of subsection (a)) for any subsequent taxable year shall be applied to restore such reduction in basis before any of it may be used to increase the shareholder's basis in the stock of the S corporation.

(3) Coordination with sections 165(g) and 166(d)

This section and section 1366 shall be applied before the application of sections 165(g) and 166(d) to any taxable year of the shareholder or the corporation in which the security or debt becomes worthless.

(4) Adjustments in case of inherited stock

(A) In general

If any person acquires stock in an S corporation by reason of the death of a decedent or by bequest, devise, or inheritance, section 691 shall be applied with respect to any item of income of the S corporation in the same manner as if the decedent had held directly his pro rata share of such item.

(B) Adjustments to basis

The basis determined under section 1014 of any stock in an S corporation shall be reduced by the portion of the value of the stock which is attributable to items constituting income in respect of the decedent.

(Added Pub. L. 97–354, §2, Oct. 19, 1982, 96 Stat. 1679 ; amended Pub. L. 98–369, div. A, title VII, §§721(d), (w), 722(e)(2), July 18, 1984, 98 Stat. 967 , 971, 974; Pub. L. 104–188, title I, §§1313(a), 1702(h)(14), Aug. 20, 1996, 110 Stat. 1785 , 1874; Pub. L. 109–280, title XII, §1203(a), Aug. 17, 2006, 120 Stat. 1066 ; Pub. L. 110–343, div. C, title III, §307(a), Oct. 3, 2008, 122 Stat. 3869 ; Pub. L. 111–312, title VII, §752(a), Dec. 17, 2010, 124 Stat. 3321 ; Pub. L. 112–240, title III, §325(a), Jan. 2, 2013, 126 Stat. 2333 ; Pub. L. 113–295, div. A, title I, §137(a), Dec. 19, 2014, 128 Stat. 4019 ; Pub. L. 114–113, div. Q, title I, §115(a), Dec. 18, 2015, 129 Stat. 3049 .)

Editorial Notes

Amendments

2015-Subsec. (a)(2). Pub. L. 114–113 struck out "The preceding sentence shall not apply to contributions made in taxable years beginning after December 31, 2014." at end of concluding provisions.

2014-Subsec. (a)(2). Pub. L. 113–295 substituted "December 31, 2014" for "December 31, 2013" in concluding provisions.

2013-Subsec. (a)(2). Pub. L. 112–240 substituted "December 31, 2013" for "December 31, 2011" in concluding provisions.

2010-Subsec. (a)(2). Pub. L. 111–312 substituted "December 31, 2011" for "December 31, 2009" in concluding provisions.

2008-Subsec. (a)(2). Pub. L. 110–343 substituted "December 31, 2009" for "December 31, 2007" in concluding provisions.

2006-Subsec. (a)(2). Pub. L. 109–280, which directed the addition of concluding provisions to section 1367(a)(2), without specifying the act to be amended, was executed to subsec. (a)(2) of this section, which is section 1367 of the Internal Revenue Code of 1986, to reflect the probable intent of Congress.

1996-Subsec. (a)(2)(E). Pub. L. 104–188, §1702(h)(14), substituted "section 613A(c)(11)(B)" for "section 613A(c)(13)(B)".

Subsec. (b)(4). Pub. L. 104–188, §1313(a), added par. (4).

1984-Subsec. (a)(2)(E). Pub. L. 98–369, §722(e)(2), substituted "for any oil and gas property held by the S corporation to the extent such deduction does not exceed the proportionate share of the adjusted basis of such property allocated to such shareholder under section 613A(c)(13)(B)" for "under section 611 with respect to oil and gas wells".

Subsec. (b)(2)(B). Pub. L. 98–369, §721(w), substituted "for any taxable year beginning after December 31, 1982, there is" for "for any taxable year there is".

Subsec. (b)(3). Pub. L. 98–369, §721(d), inserted "and 166(d)" in heading and text.

Statutory Notes and Related Subsidiaries

Effective Date of 2015 Amendment

Pub. L. 114–113, div. Q, title I, §115(b), Dec. 18, 2015, 129 Stat. 3049 , provided that: "The amendment made by this section [amending this section] shall apply to contributions made in taxable years beginning after December 31, 2014."

Effective Date of 2014 Amendment

Pub. L. 113–295, div. A, title I, §137(b), Dec. 19, 2014, 128 Stat. 4020 , provided that: "The amendment made by this section [amending this section] shall apply to contributions made in taxable years beginning after December 31, 2013."

Effective Date of 2013 Amendment

Pub. L. 112–240, title III, §325(b), Jan. 2, 2013, 126 Stat. 2333 , provided that: "The amendment made by this section [amending this section] shall apply to contributions made in taxable years beginning after December 31, 2011."

Effective Date of 2010 Amendment

Pub. L. 111–312, title VII, §752(b), Dec. 17, 2010, 124 Stat. 3321 , provided that: "The amendment made by this section [amending this section] shall apply to contributions made in taxable years beginning after December 31, 2009."

Effective Date of 2008 Amendment

Pub. L. 110–343, div. C, title III, §307(b), Oct. 3, 2008, 122 Stat. 3869 , provided that: "The amendment made by this section [amending this section] shall apply to contributions made in taxable years beginning after December 31, 2007."

Effective Date of 2006 Amendment

Pub. L. 109–280, title XII, §1203(b), Aug. 17, 2006, 120 Stat. 1066 , provided that: "The amendment made by this section [amending this section] shall apply to contributions made in taxable years beginning after December 31, 2005."

Effective Date of 1996 Amendment

Pub. L. 104–188, title I, §1313(b), Aug. 20, 1996, 110 Stat. 1785 , provided that: "The amendment made by subsection (a) [amending this section] shall apply in the case of decedents dying after the date of the enactment of this Act [Aug. 20, 1996]."

Amendment by section 1702(h)(14) of Pub. L. 104–188 effective, except as otherwise expressly provided, as if included in the provision of the Revenue Reconciliation Act of 1990, Pub. L. 101–508, title XI, to which such amendment relates, see section 1702(i) of Pub. L. 104–188, set out as a note under section 38 of this title.

Effective Date of 1984 Amendment

Amendment by section 721(d), (w) of Pub. L. 98–369 effective as if included in the Subchapter S Revision Act of 1982, Pub. L. 97–354, see section 721(y)(1) of Pub. L. 98–369, set out as a note under section 1361 of this title.

Pub. L. 98–369, div. A, title VII, §722(e)(3)(B), July 18, 1984, 98 Stat. 974 , provided that: "The amendment made by paragraph (2) [amending this section] shall apply to taxable years beginning after December 31, 1982."

Effective Date

Section applicable to taxable years beginning after Dec. 31, 1982, see section 6(a) of Pub. L. 97–354, set out as a note under section 1361 of this title.