The New York State Bar Association Tax Section has submitted a report to the IRS on the proposed regulations regarding the allocation of basis under § 358. :

• Letter from Chair (David B. Hariton) (3 pages)
• Report No. 1088  (52 pages):

This Report of the NYSBA Tax Section comments on Proposed Regulations under § 358 issued by the IRS and Treasury Department on May 3, 2004 (REG-116564-03). The Proposed Regulations address the determination of the basis of stock or securities received in a reorganization described in § 368 or a distribution to which § 355 applies. In particular, in a situation where a taxpayer exchanges, or receives a distribution with respect to, multiple blocks of stock or securities (that is, stock or securities acquired at different times or at different prices), the Proposed Regulations adopt a “tracing” rather than an “averaging” or “split-basis” regime for determining the basis of the stock or securities received by the taxpayer in the transaction. In light of the inconsistent authorities addressing this question under current law and the ambiguity of the current Regulations, the Proposed Regulations are a welcome clarification. This Report offers recommendations to further clarify this area of the law, and to potentially conform the treatment of similar transactions governed by § 358 as well as those governed by § 1036.

Part II of this Report summarizes our recommendations. Part III provides an overview of the current law regarding the allocation of basis under § 358 and § 1036 and a description of the Proposed Regulations. Our comments and recommendations with respect to the Proposed Regulations are then set forth in Part IV of this Report.