What is a section 351 contribution?
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. Page 2.
What is a 351 merger?
Section 351 Mergers Founding shareholders in a newly formed corporation generally transfer property (e.g. cash and other assets) to the new entity (NewCo) in return for ownership interests (e.g. common or preferred stock).
Can an S corp do a tax free reorganization?
In a tax-free reorganization, an S-corporation can be the target corporation or acquiring corporation, or both. The S-corporation status of a surviving target in a tax-free reorganization generally terminates because the surviving target has a disqualified stockholder (a corporation).
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).
Does IRC 351 apply to S corporations?
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 …
Is a merger a taxable transaction?
The federal tax code provides for tax free mergers and acquisitions in certain situations. In tax-free mergers, the acquiring company uses its stock as a significant portion of the consideration paid to the acquired company.
Does section 355 apply to S corporations?
Under section 1363(), an S corporation does not recognize gain on the distribution of appreciated property that is permitted by section 354, 355, or 356 to be received without tie recognition of gain. This provision can only apply to an S corporation that is a transferor in a corporate reorganization.
Why might shareholders avoid Sec 351 treatment?
351 treatment if they realize a gain or loss they want to recognize by, (1) a shareholder could sell the property to a third party who contributes it to the corporation, (2) a shareholder could intentionally sell the property to the corporation for cash, and (3) if shareholders receive sufficient boot to recognize …