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TITLE 26-INTERNAL REVENUE CODE was made. If the property so acquired consist- ed in part of the type of property permitted by section 1081(a) to be received without the recognition of gain or loss, and in part of non- exempt property, the basis provided in this subsection shall be allocated between the properties (other than money) received, and for the purpose of the allocation there shall be assigned to such nonexempt property (other than money) an amount equivalent to its fair market value at the date of the ex- change. This subsection shall not apply to property acquired by a corporation by the Is- suance of its stock or securities as the consid- eration in whole or in part for the transfer of the property to it. (2) Exchanges subject to the provisions of section 1081(b) The gain not recognized on a transfer by reason of section 1081(b) or the correspond- ing provisions of prior internal revenue laws shall be applied to reduce the basis for deter- mining gain or loss on sale or exchange of the following categories of property in the hands of the transferor immediately after the trans- fer, and property acquired within 24 months after such transfer by an expenditure or in- vestment to which section 1081(b) relates on account of the acquisition of which gain is not recognized under such subsection, in the following order: (A) property of a character subject to the allowance for depreciation under section 167; (B) property (not described in subpara- graph (A)) with respect to which a deduc- tion for amortization is allowable under sec- tion 169, 184, 185, 188, or 191; (C) property with respect to which a de- duction for depletion is allowable under sec- tion 611 but not allowable under section 613; (D) stock and securities of corporations not members of the system group of which the transferor is a member (other than stock or securities of a corporation of which the transferor is a subsidiary); (E) securities (other than stock) of corpo- rations which are members of the system group of which the transferor is a member (other than securities of the transferor or of a corporation of which the transferor is a subsidiary); (F) stock of corporations which are mem- bers of the system group of which the transferor is a member (other than stock of the transferor or of a corporation of which the transferor is a subsidiary); (G) all other remaining property of the transferor (other than stock or securities of the transferor or of a corporation of which the transferor is a subsidiary). The manner and amount of the reduction to be applied to particular property within any of the categories described in subparagraphs (A) to (G), inclusive, shall be determined under regulations prescribed by the Secre- tary. (3) Basis in case of pre-1942 acquisition Notwithstanding the provisions of para- graph (1) or (2), if the property was acquired in a taxable year beginning before January 1, 1942, in any manner described in section 372 of the Internal Revenue Code of 1939 before its amendment by the Revenue Act of 1942, the basis shall be tha~t prescribed in such sec- tion (before its amendment by such Act) with respect to such property. (b) Transfers to corporations If, In connection with a transfer subject to the provisions of section 1081(a), (b), or (e) or the COlresponding provisions of prior internal revenue laws, the property was acquired by a corporation, either as paid-in surplus or as a contribution to capital, or in consideration for stock or securities issued by the corporation re- ceiving the property (including cases where part of the consideration for the transfer of such property to the corporation consisted of property or money in addition to such stock or securities), then the basis shall be the same as it would be in the hands of the transferor, in- creased in the amount of gain or decreased in the amount of loss recognized to the transferor on such transfer under the law applicable to the year in which the transfer was made. (c) Distributions of stock or securities If the stock or securities were received in a distribution subject to the provisions of section 1081(c) or the corresponding provisions of prior internal revenue laws, then the basis in the case of the stock in respect of which the distri- bution was made shall be apportioned, under regulations prescribed by the Secretary, be- tween such stock and the stock or securities dis- tributed. (d) Transfers within system group If the property was acquired by a corporation which is a member of a system group on a transfer or distribution described in section 1081(d)(1), then the basis shall be the same as it would be in the hands of the transferor; except that if such property is stock or securi- ties issued by the corporation from which such stock or securities were received and they were Issued- (1) as the sole consideration for the proper- ty transferred to such corporation, then the basis of such stock or securities shall be either- (A) the same as in the case of the proper- ty transferred therefor, or (B) the fair market value of such stock or securities at the time of their receipt, whichever is the lower; or (2) as part consideration for the property transferred to such corporation, then the basis of such stock or securities shall be either- (A) an amount which bears the same ratio to the basis of the property transferred as the fair market value of such stock or secu- rities at the time of their receipt bears to the total fair market value of the entire consideration received, or (B) the fair market value of such stock or securities at the time of their receipt, whichever is the lower. (Aug. 16, 1954, ch. 736, 68A Stat. 315; Dec. 30, 1969, Pub. L. 91-172, title VII, §704(b)(3), 83 Stat. 699; Dec. 10, 1971, Pub. L. 92-178, title III, 71-999 0 - 78 - 44 (Vol. 7) § 1082 page 661