Tag Archive for Code Sec. 351

Requirements For Nonrecognition Of Gain Or Loss On Transfer Of Property To A Corporation IRC 351

If property is transferred to a corporation by one or more people solely in exchange for stock in the corporation and immediately after the exchange the person or people engaged in the exchange are in control of the corporation then generally speaking subject of course to certain thresholds no gain (or loss) is recognized for tax purposes. This is often referred to as a nonrecognition or 351 transaction which is a reference to the tax code number governing the transaction. The following four requirements must be met for a transaction to qualify as a Code Sec. 351 transaction:

1. The transaction must involve a corporation and a person (or people).

A person may be an individual, trust, estate, partnership, association, company, or corporation under IRC 7701(a)(1)

A corporation generally is an organization that is incorporated under state law. However, a corporation can also include an associations, joint-stock company, or insurance company.

2. The people involved must transfer property to the corporation.

The IRC does not specifically define property in these regards however the courts and the Internal Revenue Service have attempted to do just that, define property relevant to 351.

Generally it seems in my opinion the courts define property broadly and have a limited view of what can be excluded Read more