What is the control requirement of 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.

What is the definition of control for purposes of 351?

As a result, “control” would be defined as the ownership of at least 80% of the total voting power and at least 80% of the total value of the stock of a corporation.

What are the SEC 351 reporting requirements?

§ 351(a) provides: No gain or loss shall be recognized if property is transferred to a corporation by one or more persons solely in exchange for stock or securities in such corporation and immedi- ately after the exchange such person or persons are in control (as defined in section 368(c)) of the corporation.

What reason prompted Congress to enact section 351 is it to remove this tax barrier to incorporation of an unincorporated business?

Background. Concern about the tax liability that could result from incorporating a currently unincorporated business and the barrier to incorporation it could present, prompted Congress to enact Section 351 to remove this barrier to incorporation of an unincorporated business.

Does section 351 include cash?

Additionally, Cash Is considered property for purposes of Section 351. Additionally, Securities are considered property for purposes of IRC §351.

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.

What is a section 351 statement?

LAW. 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 a 368?

Overview and Fundamentals of Section 368. Section 368(A)(1) outlines a format for US tax treatment of corporate reorganizations, as described in the Internal Revenue Code of 1986. To qualify as a tax-free reorganization, a transaction must meet the statutory requirements for one of the types of tax-free reorganizations …

What is the general rule under Section 351 ( a )?

General Rule Under Section 351 (a) No gain or loss shall be recognized if – 1 – Property is transferred to a corporation by one or more persons solely in exchange for stock in such corporation and 2 – Immediately after the exchange such person or persons are in control of the corporation (as defined in IRC Section 368 (c).

How is Section 351 ( a ) satisfied in a transfer?

Section 351(c) Section 351(a) is satisfied only if the transferors of property control the transferee corporation immediately after the transfer. Therefore, if a transferor immediately transfers the stock received to someone outside the control group, the control immediately after requirement may not be satisfied.

How does P1 meet the sec.351 control requirement?

In this scenario, P1 meets the Sec. 351 control threshold after the transfer because it owns 80% of the total combined voting power of all classes of stock entitled to vote (Classes A and B ) (280 ÷ 350) and 80% of the total number of shares for all other classes of stock (Class C ) (80 ÷ 100).

How does Sec 351 apply to a consolidated group?

However, pursuant to a special aggregate stock ownership rule under Regs. Sec. 1.1502-34, stock owned by all members of a consolidated group is included for purposes of determining application of Sec. 351 (a). Therefore, S2 is deemed to own the S1 stock owned by P . As a result, Sec. 351 applies to prevent gain recognition on the exchange.