IRS final rule bars Section 357(c) basis reductions in intra-group transfers
Consolidated corporate groups must treat liability assumptions in intra-group Section 351 exchanges as non-basis-reducing effective for returns due after Oct. 16, 2026.
The final regulations published in the Federal Register (FR Doc No. 2026-21253, RIN 1545-BJ87) become effective on October 16, 2026. Under §1503(a) they apply to consolidated-return years whose due date, without extensions, falls after that date.
The rules amend 26 CFR 1.1502-80 to state that, for intragroup §351 exchanges, a transferee's assumption of liabilities described in §357(c)(3) does not reduce the transferor's basis in the stock received. The clarification rests on §1.1502-80(d)(1), which already excludes §357(c) from transactions covered by §1.1502-13.
The Treasury and IRS first proposed this approach in a 2001 notice (REG-137519-01, 66 FR 57021). A 2023 notice withdrew the 2001 proposal, and a 2024 notice (REG-134420-10, 89 FR 106884) reproposed the same clarification. No comments were received, and the 2024 proposal was adopted with non-substantive edits to the applicability date and removal of an outdated example.
The agency certified that the rule will not have a significant economic impact on a substantial number of small entities, noting that consolidated filers represent roughly two percent of all Form 1120 filers but account for about 95 percent of total receipts. The regulation imposes no new reporting requirements beyond existing tax recordkeeping, which is covered by OMB control number 1545-0123.
For technical questions, contact William W. Burhop, Office of Associate Chief Counsel (Corporate), at (202) 317-5363. The final regulations are codified at 26 CFR 1.1502-80 and are part of Treasury Decision TD 10059.
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