Sec. 307. Basis of stock and stock rights acquired in distributions
 
 (a) General rule
 If a shareholder in a corporation receives its stock or rights to
 acquire its stock (referred to in this subsection as ''new stock'')
 in a distribution to which section 305(a) applies, then the basis
 of such new stock and of the stock with respect to which it is
 distributed (referred to in this section as ''old stock''),
 respectively, shall, in the shareholder's hands, be determined by
 allocating between the old stock and the new stock the adjusted
 basis of the old stock. Such allocation shall be made under
 regulations prescribed by the Secretary.
 (b) Exception for certain stock rights
 (1) In general
  If -
 (A) a corporation distributes rights to acquire its stock to
 a shareholder in a distribution to which section 305(a)
 applies, and
 (B) the fair market value of such rights at the time of the
 distribution is less than 15 percent of the fair market value
 of the old stock at such time,
 then subsection (a) shall not apply and the basis of such rights
 shall be zero, unless the taxpayer elects under paragraph (2) of
 this subsection to determine the basis of the old stock and of
 the stock rights under the method of allocation provided in
 subsection (a).
 (2) Election
 The election referred to in paragraph (1) shall be made in the
 return filed within the time prescribed by law (including
 extensions thereof) for the taxable year in which such rights
 were received. Such election shall be made in such manner as the
 Secretary may by regulations prescribe, and shall be irrevocable
 when made.
  (c) Cross reference
 For basis of stock and stock rights distributed before June
 22, 1954, see section 1052.