26 CFR §1.1312-7

1. (a)Paragraph (7) of section 1312 applies if the determination establishes the basis of property, and there occurred one of the following types of errors in respect of a prior transaction upon which such basis depends, or in respect of a prior transaction which was erroneously treated as affecting such basis:
   1. (1)An erroneous inclusion in, or omission from, gross income, or
   2. (2)An erroneous recognition or nonrecognition of gain or loss, or
   3. (3)An erroneous deduction of an item properly chargeable to capital account or an erroneous charge to capital account of an item properly deductible.
2. (b)
   1. (1)For this section to apply, the taxpayer with respect to whom the erroneous treatment occurred must be:
      1. (i)The taxpayer with respect to whom the determination is made; or
      2. (ii)A taxpayer who acquired title to the property in the erroneously treated transaction and from whom, mediately or immediately, the taxpayer with respect to whom the determination is made derived title in such a manner that he will have a basis ascertained by reference to the basis in the hands of the taxpayer who acquired title to the property in the erroneously treated transaction; or
      3. (iii)A taxpayer who had title to the property at the time of the erroneously treated transaction and from whom, mediately or immediately, the taxpayer with respect to whom the determination is made derived title, if the basis of the property in the hands of the taxpayer with respect to whom the determination is made is determined under section 1015(a) (relating to the basis of property acquired by gift) or section 1022 (relating to the basis of property acquired from certain decedents who died in 2010).
   2. (2)No adjustment is authorized with respect to the transferor of the property in a transaction upon which the basis of the property depends, when the determination is with respect to the original transferee or a subsequent transferee of the original transferee.
3. (c)The application of this section may be illustrated by the following examples:
4. (d)Effective/applicability date. This section applies on and after January 19, 2017. For rules before January 19, 2017, see § 1.1312-7 as contained in 26 CFR part 1 revised as of April 1, 2016.