Cal. Code Regs. tit. 18 § 24961
The basis of property acquired by a corporation during a period of affiliation from a corporation with which it was affiliated shall be the same as it would be in the hands of the corporation from which acquired. This rule is applicable if the basis of the property is material in determining tax liability for any year, whether a separate return or a consolidated return is made in respect of such year. For the purpose of this regulation, the term "period of affiliation" means the period during which such corporations were affiliated (determined in accordance with the law applicable thereto), but does not include any income year beginning on or after January 1, 1935, unless a consolidated return was made.
EXAMPLE.
The X Corporation, the Y Corporation, and the Z Corporation were affiliated for the income year 1920. During that year the X Corporation transferred assets to the Y Corporation for $120,000 cash, and the Y Corporation in turn transferred the assets during the same year to the Z Corporation for $130,000 cash. The assets were acquired by the X Corporation in 1916 at a cost of $100,000. The basis of the assets in the hands of the Z Corporation is $100,000.
The basis of property acquired by a corporation during any period, in the income year 1929 or any subsequent income year, in respect of which a consolidated return was made or was required under Reg. 23361-23364a, or subsequent regulations relating to consolidated returns, shall be determined in accordance with such regulations. The basis in the case of property held by a corporation during any period, in the income year 1929 or any subsequent income year, in respect of which a consolidated return is made or is required under Reg. 23361-23364a, or subsequent regulations relating to consolidated returns, shall be adjusted in respect of any items relating to such period in accordance with such regulations.
The basis of property after a consolidated return period shall be the same as immediately prior to the close of such period.
This regulation applies to all members of an affiliated group, which filed consolidated returns for income years prior to January 1, 1935. After that date, only affiliated railroads meeting the requirements of Section 23361 have the privilege of filing a consolidated report. Section 24961 does not apply to corporations filing a consolidated report under Section 25104.[FN*]
This regulation is the same as Title 18, California Administrative Code, Chapter 3, Subchapter 3, Section 25071 i.
Cal. Code Regs. Tit. 18, § 24961