The California Franchise Tax Board has issued guidance on how a Deferred Intercompany Stock Account (DISA) balance affects basis and income recognition when stock is distributed to shareholders in a nonrecognition transaction under IRC Sec. 355. DISA income will remain deferred when stock is transferred between members of the same combined reporting group. If the member to whom stock is transferred already possesses similar stock with a positive basis, any basis in the stock already possessed can be used to reduce or eliminate the DISA. If the DISA is eliminated, then the subsequent distribution of the stock to shareholders will not result in the recognition of income to the distributing corporation. Legal Ruling 2025-01, California Franchise Tax Board, July 30, 2025