---
kind: "section"
citation: "26 U.S.C. § 961"
title: "26"
title_heading: "Internal Revenue Code"
number: "961"
heading: "Adjustments to basis of stock in controlled foreign corporations and of other property"
release: "119-102"
date: "2026-07-12"
url: "https://uscodex.org/usc/26/961"
units:
  - "Subtitle A — Income Taxes"
  - "Chapter 1 — Normal Taxes and Surtaxes"
  - "Subchapter N — Tax Based on Income From Sources Within or Without the United States"
  - "Part III — Income from Sources Without the United States"
  - "Subpart F — Controlled Foreign Corporations"
---

# §961. Adjustments to basis of stock in controlled foreign corporations and of other property

- (a) **Increase in basis—** Under regulations prescribed by the Secretary, the basis of a [United States](/usc/26/993.md?p=g) shareholder’s [stock](/usc/26/1504.md?p=a-4) in a controlled foreign corporation, and the basis of [property](/usc/26/317.md?p=a) of a [United States](/usc/26/993.md?p=g) shareholder by reason of which he is considered under [section 958(a)(2)](/usc/26/958.md?p=a-2) as owning [stock](/usc/26/1504.md?p=a-4) of a controlled foreign corporation, shall be increased by the amount required to be included in his gross income under [section 951(a)](/usc/26/951.md?p=a) with respect to such [stock](/usc/26/1504.md?p=a-4) or with respect to such [property](/usc/26/317.md?p=a), as the case may be, but only to the extent to which such amount was included in the gross income of such [United States](/usc/26/993.md?p=g) shareholder. In the case of a [United States](/usc/26/993.md?p=g) shareholder who has made an election under [section 962](/usc/26/962.md) for the taxable year, the increase in basis provided by this subsection shall not exceed an amount equal to the amount of tax paid under this chapter with respect to the amounts required to be included in his gross income under [section 951(a)](/usc/26/951.md?p=a).
- (b) **Reduction in basis—**
  - (1) **In general—** Under regulations prescribed by the Secretary, the adjusted basis of [stock](/usc/26/1504.md?p=a-4) or other [property](/usc/26/317.md?p=a) with respect to which a [United States](/usc/26/993.md?p=g) shareholder or a [United States](/usc/26/993.md?p=g) person receives an amount which is excluded from gross income under [section 959(a)](/usc/26/959.md?p=a) shall be reduced by the amount so excluded. In the case of a [United States](/usc/26/993.md?p=g) shareholder who has made an election under [section 962](/usc/26/962.md) for any prior taxable year, the reduction in basis provided by this paragraph shall not exceed an amount equal to the amount received which is excluded from gross income under [section 959(a)](/usc/26/959.md?p=a) after the application of [section 962(d)](/usc/26/962.md?p=d).
  - (2) **Amount in excess of basis—** To the extent that an amount excluded from gross income under [section 959(a)](/usc/26/959.md?p=a) exceeds the adjusted basis of the [stock](/usc/26/1504.md?p=a-4) or other [property](/usc/26/317.md?p=a) with respect to which it is received, the amount shall be treated as gain from the [sale or exchange](/usc/26/864.md?p=c-8-D) of [property](/usc/26/317.md?p=a).
- (c) **Basis adjustments in stock held by foreign corporations—** Under regulations prescribed by the Secretary, if a [United States](/usc/26/993.md?p=g) shareholder is treated under [section 958(a)(2)](/usc/26/958.md?p=a-2) as owning [stock](/usc/26/1504.md?p=a-4) in a controlled foreign corporation which is owned by another controlled foreign corporation, then adjustments similar to the adjustments provided by subsections [(a)](#a) and [(b)](#b) shall be made to—
  - (1) the basis of such [stock](/usc/26/1504.md?p=a-4), and
  - (2) the basis of [stock](/usc/26/1504.md?p=a-4) in any other controlled foreign corporation by reason of which the [United States](/usc/26/993.md?p=g) shareholder is considered under [section 958(a)(2)](/usc/26/958.md?p=a-2) as owning the [stock](/usc/26/1504.md?p=a-4) described in [paragraph (1)](#c-1),

  but only for the purposes of determining the amount included under [section 951](/usc/26/951.md) in the gross income of such [United States](/usc/26/993.md?p=g) shareholder (or any other [United States](/usc/26/993.md?p=g) shareholder who acquires from any person any portion of the [interest](/usc/26/856.md?p=f-1) of such [United States](/usc/26/993.md?p=g) shareholder by reason of which such shareholder was treated as owning such [stock](/usc/26/1504.md?p=a-4), but only to the extent of such portion, and subject to such proof of identity of such [interest](/usc/26/856.md?p=f-1) as the Secretary may prescribe by regulations). The preceding sentence shall not apply with respect to any [stock](/usc/26/1504.md?p=a-4) to which a basis adjustment applies under subsection [(a)](#a) or [(b)](#b).

- (d) **Basis in specified 10-percent owned foreign corporation reduced by nontaxed portion of dividend for purposes of determining loss—** If a domestic corporation received a [dividend](/usc/26/316.md?p=a) from a specified 10-percent owned foreign corporation (as defined in [section 245A](/usc/26/245A.md)) in any taxable year, solely for purposes of determining loss on any [disposition](/usc/26/424.md?p=c-1) of [stock](/usc/26/1504.md?p=a-4) of such foreign corporation in such taxable year or any subsequent taxable year, the basis of such domestic corporation in such [stock](/usc/26/1504.md?p=a-4) shall be reduced (but not below zero) by the amount of any deduction allowable to such domestic corporation under [section 245A](/usc/26/245A.md) with respect to such [stock](/usc/26/1504.md?p=a-4) except to the extent such basis was reduced under [section 1059](/usc/26/1059.md) by reason of a [dividend](/usc/26/316.md?p=a) for which such a deduction was allowable.

## Source credit

(Added Pub. L. 87–834, § 12(a), Oct. 16, 1962, 76 Stat. 1022; amended Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 105–34, title XI, § 1112(b)(1), Aug. 5, 1997, 111 Stat. 969; Pub. L. 109–135, title IV, § 409(b), Dec. 21, 2005, 119 Stat. 2635; Pub. L. 115–97, title I, § 14102(b)(1), Dec. 22, 2017, 131 Stat. 2192.)

## Notes

### Editorial Notes

### Amendments

2017—Subsec. (d). Pub. L. 115–97 added subsec. (d).

2005—Subsec. (c). Pub. L. 109–135 amended heading and text of subsec. (c) generally. Prior to amendment, text read as follows: “Under regulations prescribed by the Secretary, if a United States shareholder is treated under section 958(a)(2) as owning any stock in a controlled foreign corporation which is actually owned by another controlled foreign corporation, adjustments similar to the adjustments provided by subsections (a) and (b) shall be made to the basis of such stock in the hands of such other controlled foreign corporation, but only for the purposes of determining the amount included under section 951 in the gross income of such United States shareholder (or any other United States shareholder who acquires from any person any portion of the interest of such United States shareholder by reason of which such shareholder was treated as owning such stock, but only to the extent of such portion, and subject to such proof of identity of such interest as the Secretary may prescribe by regulations).”

1997—Subsec. (c). Pub. L. 105–34 added subsec. (c).

1976—Subsecs. (a), (b)(1). Pub. L. 94–455 struck out “or his delegate” after “Secretary”.

### Statutory Notes and Related Subsidiaries

### Effective Date of 2017 Amendment

Pub. L. 115–97, title I, § 14102(b)(2), Dec. 22, 2017, 131 Stat. 2192, provided that: “The amendments made by this subsection [amending this section] shall apply to distributions made after December 31, 2017.”

### Effective Date of 2005 Amendment

Pub. L. 109–135, title IV, § 409(d), Dec. 21, 2005, 119 Stat. 2636, provided that: “The amendments made by this section [amending this section and sections 6038B, 6411, and 6601 of this title] shall take effect as if included in the provisions of the Taxpayer Relief Act of 1997 [Pub. L. 105–34] to which they relate.”

### Effective Date of 1997 Amendment

Pub. L. 105–34, title XI, § 1112(b)(2), Aug. 5, 1997, 111 Stat. 969, provided that: “The amendment made by paragraph (1) [amending this section] shall apply for purposes of determining inclusions for taxable years of United States shareholders beginning after December 31, 1997.”

### Dual Resident Companies

Basis adjustments of this section not applicable in certain circumstances involving dual resident companies, see section 6126 of Pub. L. 100–647, set out as a note under section 1502 of this title.