When an IRA distribution is taken "in kind" and the shares are sent to a taxable account the cost basis on the shares in the taxable acount is the fair market value (FMV) on the distribution date. Could anyone tell me where I can find this in print i.e. IRS Pub or Reg?

Don't know of a cite. But you gain basis from the fact that the distribution results in taxable income to the IRA owner in the amount of the fair market value of the shares, and by reason of paying the tax on that amount, you have tax basis in that amount.

It's definitional of the tax basis of an asset. See what John said above. It's semi-analogous to a partnership, where a partner pays tax on income that's not distributed, resulting in an increase in basis.

(edited to remove the part that John had said just as well as I ended up with).