Section 351(a) provides that no gain or loss shall be recognized if property is transferred to a corporation by one or more persons solely in exchange for stock in such corporation and immediately after the exchange such person or persons are in control (as defined in § 368(c)) of the corporation.
What is the purpose of Code Sec 351 in regard to transfers to corporations?
Sec. 351 allows a tax-free incorporation transfer if certain requirements are met, including that the property must be transferred to a corporation by one or more persons in exchange for stock in the corporation, and, immediately after the exchange, the transferor(s) is (are) in control (as defined in Sec.
What is property for purposes of section 351?
Property for purposes of section 351 includes “secret processes and for- mulas,” and any other secret information pertaining to processes in the general nature of a patentable invention, without regard to whether a patent has been applied for or whether the information is patentable.
What is the control requirement of section 351?
Control means ownership of at least 80 percent of all classes of the corporation’s stock and at least 80 percent of the total voting power of all classes of stock. See Meeting the 80-Percent Control Test for Section 351 Transfers. The Section 351 transfer rules are not elective.
Does section 351 apply to foreign corporations?
The IRS has ruled that a domestic corporation’s transfer of all the stock of its foreign operating subsidiary to its foreign holding company subsidiary is a section 351 exchange and that transfers by foreign operating company subsidiaries involved in the transaction followed by their liquidations are reorganizations …
Does IRC 351 apply to S corporations?
Section 351 of the Internal Revenue Code provides an exception to this general rule, however. This section codifies a philosophy that the incorporation of a business should generally be tax free both to the shareholders and to the corporation. This code section applies to S corporations and C corporations alike.
What financial instruments are not considered stock for purposes of section 351?
Stock warrants and stock rights do not qualify as stock, but are treated as boot, for purposes of Section 351 transfers. Securities received in a Section 351 transfer are also not treated as stock, but as boot. Thus, the receipt of such instruments by the transferor may result in gain recognition under the boot rules.
Which IRC section defines control under a 351 transfer?
26 U.S.C. section 351, Transfer to corporation controlled by transferor. Under IRC section 351(a), no gain or loss is recognized when property is transferred to a corporation by a person solely in exchange for stock in that corporation and that person is in control of the corporation immediately after the exchange.
What three conditions must be met for a completely tax free incorporation?
In addition, a tax-free reorganization generally must also satisfy the three judicial requirements (continuity of interest, continuity of business enterprise, and business purpose) that apply to all tax-free reorganizations.
Does section 351 apply to S corps?
In the case of a contribution of appreciated property to an S corporation in order to obtain tax deferral, IRC section 351(a) requires that the transferor shareholder, along with all other shareholders making contemporaneous contributions of property, control the corporation immediately after such transfer, and IRC …
What kind of transfer is a section 351 transfer?
They formed a corporation and transferred all of their assets to the corporation. The US Tax Court has already ruled on this scenario by saying this type of transaction would be a Code Section 351 transfer.
Can a gain or loss be recognized under Section 351?
What do you need to know about the 351 transaction?
351 transaction relates to the stock or securities definition. To be considered in control of the corporation, the transferor must receive stock (rather than merely securities, although securities could accompany the share transfer), or must already own shares in the corporation. To be considered in control,
What is the basis in stock in Section 351?
basis in stock of the transferee corporation received by the transferor in a Section 351 transaction generally is the same as the transferor’s basis in the property or properties transferred to the corporation, reduced by (i) the amount of money received as boot, (ii) the amount
