ART. 1593. Property acquired by gift after December 31, 1920.-If the property was acquired by gift after December 31, 1920, the basis is the same as it would be in the hands of the donor, or the last preceding owner by whom it was not acquired by gift. See article 1591. If the donee is unable to ascertain the facts necessary to determine the basis, he shall so state upon his return, and the Commissioner will, if possible, obtain such facts from the donor, the last preceding owner, or any other person cognizant thereof. If the Commissioner finds it impossible to obtain such facts, the basis shall be the fair market value of the property as found by the Commissioner, as of the date or approximate date at which, according to the best information the Commissioner is able to obtain, the property was acquired by the donor or last preceding owner. In order to insure a fair and adequate appraisal or determination of the proper basis, persons making gifts of property should preserve an accessible record of the facts necessary to determine the cost of such property, and its fair market value as of March 1, 1913, where pertinent.

ART. 1594. Property acquired by gift or transfer in trust on or before December 31, 1920, or by bequest, devise, or inheritance.-In computing the gain or loss from the sale or other disposition of property acquired by gift or by a transfer in trust on or before December 31, 1920, or by bequest, devise, or inheritance, the basis shall be the fair market price or value of such property at the time of acquisition. The term "property acquired by bequest, devise, or inheritance” as used herein includes (a) such property interests as the taxpayer has received as the result of a transfer, or creation of a trust, in contemplation of or intended to take effect in possession or enjoyment at or after death, (b) such property interests as the taxpayer has received as the result of the exercise by a person of a general power of appointment (1) by will, or (2) by deed executed in contemplation of or intended to take effect in possession or enjoyment at or after his death, and (c) such property interests as the taxpayer has received as the result of a transfer or creation of a trust, where the enjoyment was subject to change through the exercise of a power, by the grantor alone or in conjunction with another, to alter, amend, or revoke. In the case of property acquired by gift, bequest, devise, or inheritance, prior to March 1, 1913, the taxable gain or deductible loss from the sale or other disposition thereof shall be computed in accordance with article 1591. In the case of property acquired by bequest, devise, or inheritance, its value as appraised for the purpose of the Federal estate tax or in the case of estates not subject to that tax its value as appraised in the State court for the purpose of State inheritance taxes shall be deemed to be its fair market value when acquired.

ART. 1595. Property acquired by transfer in trust after December 31, 1920.—In the case of property acquired after December 31, 1920, by a transfer in trust, other than by a transfer in trust by bequest or devise, the basis shall be the same as it would be in the hands of the grantor, increased in the amount of gain or decreased in the amount of loss recognized to the grantor upon such transfer under the law applicable to the year in which the transfer was made. This article is not applicable, however, to property acquired by bequest, devise, or inheritance, as defined in the preceding article.

ART. 1596. Property acquired upon an exchange. In the case of property acquired upon an exchange described in subdivision (b), (d), (e), or (f) of section 203 (see articles 1572–1577), the basis is the same as in the case of the property exchanged, (1) decreased in the amount of any money received by the taxpayer, and (2) increased in the amount of gain, or decreased in the amount of loss to the taxpayer that was recognized upon such exchange under the law applicable to the year in which the exchange was made.

Example.-A purchased a share of stock in the X company in 1918 for $100. Pursuant to a plan of reorganization, A in 1924 exchanges his share for one share in the Y company, worth $90, and $30 in cash. Under the provisions of section 203 (d) (see article 1575), A realized a taxable gain of $20 from this exchange. The basis of the share of stock in Y is $90; that is, the basis of the share in X ($100) less the amount of money received by A ($30) plus the amount of gain recognized on the exchange ($20).

If the property which was acquired upon an exchange described in subdivision (b), (d), (e), or (f) of section 203 (see articles 1572– 1577) consisted in part of the type of property permitted by paragraph (1), (2), (3), or (4) of subdivision (b) of section 203, to be received without the recognition of gain or loss, and in part of other property, the basis provided in the preceding paragraph of this article shall be allocated between the properties (other than money) received. For the purpose of this allocation, there shall be assigned to such other property an amount equivalent to its fair market value at the date of the exchange.

Example.-A purchased a share of stock in the X company in 1920 for $100. Upon a reorganization of the X company in 1924, A receives in place of his stock in the X company a share of stock in the Y company worth $60, a Liberty bond worth $50, and $20 in cash. Under section 203 (d) A realized a gain of $30 from the exchange. The basis of the property received in exchange is the basis of the old stock ($100) decreased in the amount of money received ($20) and increased in the amount of gain that was realized ($30) which results in a basis for the property received of $110. This basis of $110 is

apportioned between the Liberty bond and the share of stock, the basis for determining gain or loss from a subsequent disposition of the Liberty bond being its fair market value at the date of the exchange, $50, and of the share of stock, the remainder, $60.

This article does not apply in ascertaining the basis for determining gain or loss of property acquired by a corporation by the issuance of its stock or securities as the consideration in whole or in part for the transfer of the property to it.

ART. 1597. Property acquired in reorganization after December 31, 1917. In the case of property (other than stock or securities in a corporation a party to the reorganization) which was acquired after December 31, 1917, by a corporation in connection with a reorganization, if immediately after the transfer an interest or control in such property of 80 per cent or more remained in the same persons or in any of them, the basis for determining gain or loss from the sale or other disposition of the property shall be the same as it would be in the hands of the transferor, increased in the amount of gain or decreased in the amount of loss recognized to the transferor upon such transfer under the law which was applicable to the year in which the transfer was made.

Example.-A corporation owns property which it purchased in 1920 for $10,000. It causes the organization of the B corporation, transferring the property to the B corporation in exchange for shares of its stock, which the A corporation distributes to its stockholders as a dividend. Since no gain or loss from this transaction is recognized under section 203 (b) (3) the basis for determining the gain or loss from the subsequent sale or other disposition of the property, and for determining depreciation and depletion is $10,000, the basis which the property would have in the hands of corporation A.

ART. 1598. Property acquired after December 31, 1920, by a corporation. In the case of property other than stock or securities in a corporation a party to a reorganization, acquired after December 31, 1920, by a corporation, by the issuance of its stock or securities in exchange for such property, in accordance with the conditions specified in section 203 (b) (4), the basis of such property shall be the same as it would be in the hands of the transferor, increased in the amount of gain or decreased in the amount of loss recognized to the transferor upon the transfer under the law applicable to the year in which the transfer was made. This article also applies to cases in which part of the consideration for the transfer of property to the corporation was property or money in addition to stock or securities, provided that the other conditions specified in section 203(b) (4) are satisfied.

It should be noted that property may be acquired in connection with a reorganization without the provisions of article 1597 being applicable, because of the fact that an interest or control of 80 per cent or more does not remain in the same persons. If, however, such a transaction falls within the provisions of this article, the limitations imposed herein upon the basis of such property are applicable.

ART. 1599. Dividend stock.--In the case of stock or securities acquired by a stockholder after December 31, 1923, in connection with a transaction described in article 1576, the basis in the case of the stock in respect of which the distribution was made shall be apportioned between such stock and the stock or securities distributed to the stockholder. The basis for the old and new shares shall be determined in accordance with the following rules:

(1) Where the stock issued as a dividend is all of substantially the same character or preference as the stock upon which the dividend is paid, the basis of each share will be the quotient of the cost or other basis of the old shares of the stock divided by the total number of the old and new shares.

(2) Where the stock issued as a dividend is in whole or in part of a character or preference materially different from the stock upon which the dividend is paid, the cost or other basis of the old shares of stock shall be divided between such old stock and the new stock in proportion, as nearly as may be, to the respective values of each class of stock, old and new, at the time the new shares of stock are issued, and the basis of each share of stock will be the quotient of the cost or other basis of the class with which such share belongs, divided by the number of shares in the class. The portion of the cost or other basis of the old shares of stock to be attributed to the shares of new preferred stock shall in no case exceed the fair market value of such shares as of the time of their issuance.

(3) Where the stock with respect to which a dividend is issued was purchased at different times and at different prices and the identity of the lots can not be determined, any sale of the original stock will be charged to the earliest purchases of such stock (see article 39), and any sale of dividend stock issued with respect to such stock will be presumed to have been made from the stock issued with respect to the earliest purchased stock, to the amount of the dividend chargeable to such stock.

(4) Where the stock with respect to which a dividend is declared was purchased at different times and at different prices, and the dividend stock issued with respect to such stock can not be iden tified as having been issued with respect to any particular lot of such stock, then any sale of such dividend stock will be presumed to have

been made from the stock issued with respect to the earliest purchased stock, to the amount of the dividend stock chargeable to such stock.

ART. 1600. Property acquired by an involuntary conversion.-In the case of property acquired as the result of an involuntary conversion described in article 1579, the basis of the property shall be the same as in the case of property so converted, (1) decreased in the amount of any money received by the taxpayer which was not expended in accordance with the provisions of law (applicable to the year in which such conversion was made) determining the taxable status of the gain or loss upon such conversion, (2) increased in the amount of gain or decreased in the amount of loss to the taxpayer recognized upon such conversion under the law applicable to the year in which the conversion was made.

Example.-A vessel purchased by A in 1918 for $100,000 is destroyed in 1924 and A receives insurance in the amount of $200,000. If A invests $150,000 in a new vessel, taxable gain to the extent of $50,000 would be recognized under the provisions of article 1579. If the new vessel is subsequently sold, the basis for determining gain or loss is $100,000, that is, the cost of the old vessel ($100,000), minus the money received by the taxpayer which was not expended in the acquisition of the new vessel ($50,000) plus the amount of gain recognized upon the conversion ($50,000).

ART. 1601. Stock or securities acquired in "wash sales."-If substantially identical property was acquired after December 31, 1920, in place of stock or securities which were sold or disposed of, and in respect of which loss was not allowed as a deduction under section 214(a) (5) or 234 (a) (4) of this Act, or of the Revenue Act of 1921, the basis in the case of the new property shall be the same as the basis of the stock or securities so sold, increased in the amount of any excess of the repurchase price over the sale price, or decreased by the amount by which the sale price exceeds the repurchase price, as the case may be.

Example.-A purchased a share of stock for $100 in 1921, which he sold January 15, 1924, for $80. On February 1, 1924, he purchased a share of stock in the same corporation for $90. No loss from the sale is recognized under section 214(a) (5). The basis for determining gain or loss from the sale of the new share is $110, that is, the basis of the old share ($100) increased by $10, the amount of the difference between the price for which sold ($80) and the repurchase price ($90).

ART. 1602. Basis for allowance of depletion and depreciation. The basis upon which depletion, exhaustion, wear and tear, and obsolescence will be allowed in respect of any property is the same as is