"Is the sale of proceeds of EMC shares on the section 351 portion taxable ?"
The GAIN on sale - Proceeds minus Basis - is taxable, yes.
"If so, what cost basis can I apply against the sale of EMC shares ? "
As I explained, you need to DERIVE a basis to use, depending on your circumstances. You need to derive it since the gain is limited to the lesser of the cash received or your "actual" gain. And your "actual" gain is determined by allocating 86.77% of your EMC basis to the sale.
Given your example the Sec 351 gain is the amount of cash received so you'd report a basis in this case of $0 for that calculation.
Then you'd use the remainder of your EMC basis against the "Redemption" cash, for another gain.
You could then report two separate "trades" or add the proceeds and basis amounts together as one "sale".
