What is a 351 Reorganization?
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.
Under what circumstances will a realized gain and or loss be recognized on a section 351 transfer?
A realized gain is recognized on a § 351 transfer if the transferor receives “boot” in the exchange (i.e., money or property other than stock).
Which IRC section defines control under a 351 transfer?
Section 368(c) defines control: Control means the ownership of stock possessing at least 80% of the total combined voting power of all classes of stock entitled to vote and at least 80% of the total number of outstanding shares of all other classes of stock of the corporation.
What benefit does the government get from allowing IRC section 351?
IRC Section 351 permits a shareholder to contribute property and receive some form of value in addition to corporate shares. Additional value received is commonly known as boot. The shareholder, however, will have tax liability for the non-stock value received from the corporation.
Does 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 …
Can a section 351 transaction defer the taxable income if that property is contributed?
Whether you’re setting up a new corporation with just yourself or other people, such as partners in a partnership, or getting involved in an existing corporation, under IRC Section 351(a) you can defer (put off) any resulting tax consequence. You are in CONTROL of the corporation immediately after the exchange.
Which of the following requirements must be met to qualify for a deferral under 351?
In order to qualify for deferral under Section 351, which of the following requirements must be met? acquiring corp transfers its own stock to the target corp shareholders in exchange for the target corp stock. The acquisition and target will merge into a new corp.
What is the control requirement of section 351?
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.
Does IRC 351 apply to S corporations?
Can an S Corp buy its own stock?
An S corporation can buy stock. There’s no prohibition against any purchase by an S corporation that you can make as an individual.
Can an S Corp make a 754 election?
This election and tax savings opportunity is not available to S corporations; S corporations may not make Section 754 elections.
Does section 351 apply to LLC?
For an LLC taxed as a corporation, the LLC’s basis in the contributed assets is the same as the basis of the member that contributed such property if the contribution was tax free under IRC Section 351. Because of the tax implications, LLCs can be more complicated than many expect.
When to use § 351 of Internal Revenue Code?
requirement of § 351 of the Internal Revenue Code if, pursuant to a binding agreement entered into by the transferor with a third party prior to the exchange, the transferor transfers the stock of the first corporation to another corporation (the “second
What makes a gain recognition under Section 351?
The question what constitutes stock or securities can itself be nettlesome. Section 351 requires that the transfer of property must be solely in exchange for stock or securities of the transferee corporation. Money or other property received will result in gain recognition.
What can go wrong with a section 351 transfer?
Section 351 transfers to controlled corporations are one of the most simple transactions in the corporate repertoire. Not much can go wrong, it would seem. Indeed, in many complicated corporate structures, the Section 351 transfers (sometimes there are several) are often given short shrift.
When is the control requirement of Sec 351 an opportunity?
Observation: Example 3 shows that when there are two or more classes of voting stock, the control requirement of Sec. 351 can serve as either an opportunity or a hindrance in obtaining tax-free treatment. Corporate instruments can be drafted or amended with consideration of the control requirement.