Proposed regs. provide model for stock basis recovery and identification.

• Author: Nevius, Alistair M.

On January 21, 2009, Treasury issued proposed regulations that provide shareholders with guidance on allocating and recovering stock basis in Sec. 301 distributions (REG-143686-07). Their purpose is to present a single model for stock basis recovery when a shareholder receives a constructive or actual distribution to which Sec. 301 applies and a single model for sales and exchanges to which Sec. 302(a) applies.

The proposed regulations define the scope of the exchange that must be analyzed under certain Code sections. They also provide a methodology for determining gain realized under Sec. 356 and stock basis under Sec. 358.

The proposed regulations aim to clarify a number of areas that are currently unclear. For example, Sec. 301 does not specify how to identify the shares upon which a distribution is made or whether a shareholder recovers its stock basis in the aggregate or share by share. It is also unclear whether transactions treated as Sec. 301 distributions (i.e., redemptions under Sec. 302(d), certain Sec. 304 transactions, and certain reorganizations) should be subject to the same rules as actual Sec. 301 distributions. For reorganizations, the Code provides consequences resulting from different types of exchanges but does not specify whether the exchange is based on a shareholder's aggregate stock holdings or...