Title II — TAX ON INCOME
(5) Basis.—
(a) The basis of the stock or securities received by the transferor
upon the exchange specified in the above exception shall be the
same as the basis of the property, stock or securities exchanged,
decreased by (1) the money received, and (2) the fair market
value of the other property received, and increased by (a) the
amount treated as dividend of the shareholder and (b) the
amount of any gain that was recognized on the exchange:
Provided, That the property received as ‘boot’ shall have as
basis its fair market value: Provided, further, That if as part of
the consideration to the transferor, the transferee of property
assumes a liability of the transferor or acquires from the latter
property subject to a liability, such assumption or acquisition (in
the amount of the liability) shall, for purposes of this paragraph,
be treated as money received by the transferor on the exchange:
Provided, finally, That if the transferor receives several kinds
of stock or securities, the Commissioner is hereby authorized
to allocate the basis among the several classes of stocks or
securities.
(b) The basis of the property transferred in the hands of the
transferee shall be the same as it would be in the hands of the
transferor increased by the amount of the gain recognized to the
transferor on the transfer.
(6) Definitions. —
(a) The term ‘securities’ means bonds and debentures but not ‘notes’
of whatever class or duration.
(b) The term ‘merger’ or ‘consolidation’, when used in this Section,
shall be understood to mean: (i) the ordinary merger or
consolidation, or (ii) the acquisition by one corporation of all
or substantially all the properties of another corporation solely
for stock: Provided, That for a transaction to be regarded as a
merger or consolidation within the purview of this Section,
it must be undertaken for a bona fide business purpose and
not solely for the purpose of escaping the burden of taxation:
Provided, further, That in determining whether a bona fide
business purpose exists, each and every step of the transaction
shall be considered and the whole transaction or series
of transactions shall be treated as a single unit: Provided,
finally, That in determining whether the property transferred
constitutes a substantial portion of the property of the
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