I.R.C. § 351(a) General Rule —
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 section 368(c)) of the corporation.
I.R.C. § 351(b) Receipt Of Property —
If subsection (a) would apply to an exchange but for the fact that there is received, in addition
to the stock permitted to be received under subsection (a), other property or money,
then—
I.R.C. § 351(b)(1) —
gain (if any) to such recipient shall be recognized, but not in excess of—
I.R.C. § 351(b)(1)(A) —
the amount of money received, plus
I.R.C. § 351(b)(1)(B) —
the fair market value of such other property received; and
I.R.C. § 351(b)(2) —
no loss to such recipient shall be recognized.
I.R.C. § 351(c) Special Rules Where Distribution To Shareholders
I.R.C. § 351(c)(1) In General —
In determining control for purposes of this section, the fact that any corporate
transferor distributes part or all of the stock in the corporation which it receives
in the exchange to its shareholders shall not be taken into account.
I.R.C. § 351(c)(2) Special Rule For Section 355 —
If the requirements of section 355 (or so much of section 356 as relates to section 355) are met with respect to a distribution described in paragraph (1), then, solely for purposes of determining the tax treatment of the
transfers of property to the controlled corporation by the distributing
corporation, the fact that the shareholders of the distributing
corporation dispose of part or all of the distributed stock, or the fact that the
corporation whose stock was distributed issues additional stock, shall not be taken
into account in determining control for purposes of this section.
I.R.C. § 351(d) Services, Certain Indebtedness, And Accrued Interest Not Treated As Property —
For purposes of this section, stock issued for—
I.R.C. § 351(d)(1) —
services,
I.R.C. § 351(d)(2) —
indebtedness of the transferee corporation which is not evidenced by a security,
or
I.R.C. § 351(d)(3) —
interest on indebtedness of the transferee corporation which accrued on or after
the beginning of the transferor's holding period for the debt,
shall not be considered as issued in return for property.
I.R.C. § 351(e) Exceptions —
This section shall not apply to—
I.R.C. § 351(e)(1) Transfer Of Property To An Investment Company —
A transfer of property to an investment company. For purposes of the preceding
sentence, the determination of whether a company is an investment company shall be
made—
I.R.C. § 351(e)(1)(A) —
by taking into account all stock and securities held by the company, and
I.R.C. § 351(e)(1)(B) —
by treating as stock and securities—
I.R.C. § 351(e)(1)(B)(i) —
money,
I.R.C. § 351(e)(1)(B)(ii) —
stocks and other equity interests in a corporation, evidences of indebtedness, options,
forward or futures contracts, notional principal contracts and derivatives,
I.R.C. § 351(e)(1)(B)(iii) —
any foreign currency,
I.R.C. § 351(e)(1)(B)(iv) —
any interest in a real estate investment trust, a common trust fund, a regulated
investment company, a publicly-traded partnership (as defined in section 7704(b))
or any other equity interest (other than in a corporation) which pursuant to its
terms or any other arrangement is readily convertible into, or exchangeable for,
any asset described in any preceding clause, this clause or clause (v) or (viii),
I.R.C. § 351(e)(1)(B)(v) —
except to the extent provided in regulations prescribed by the Secretary, any interest
in a precious metal, unless such metal is used or held in the active conduct of a
trade or business after the contribution,
I.R.C. § 351(e)(1)(B)(vi) —
except as otherwise provided in regulations prescribed by the Secretary, interests
in any entity if substantially all of the assets of such entity consist (directly
or indirectly)
of any assets described in any preceding clause or clause (viii),
I.R.C. § 351(e)(1)(B)(vii) —
to the extent provided in regulations prescribed by the Secretary, any interest in
any entity not described in clause (vi), but only to the extent of the value of such
interest that is attributable to assets listed in clauses (i) through (v) or clause (viii), or
I.R.C. § 351(e)(1)(B)(viii) —
any other asset specified in regulations prescribed by the Secretary.
The Secretary may prescribe regulations that, under appropriate circumstances, treat
any asset described in clauses (i)
through (v) as not so listed.
I.R.C. § 351(e)(2) Title 11 Or Similar Case —
A transfer of property of a debtor pursuant to a plan while the debtor is under
the jurisdiction of a court in a title 11 or similar case (within the meaning of
section 368(a)(3)(A)), to the extent that the stock received in the exchange is used to satisfy the indebtedness
of such debtor.
I.R.C. § 351(f) Treatment Of Controlled Corporation —
If--
I.R.C. § 351(f)(1) —
property is transferred to a corporation
(hereinafter in this subsection referred to as the “controlled corporation”)
in an exchange with respect to which gain or loss is not recognized
(in whole or in part) to the transferor under this section, and
I.R.C. § 351(f)(2) —
such exchange is not in pursuance of a plan of reorganization, section 311
shall apply to any transfer in such exchange by the controlled corporation
in the same manner as if such transfer were a distribution to which
subpart A of part I applies.
I.R.C. § 351(g) Nonqualified Preferred Stock Not Treated As Stock-
I.R.C. § 351(g)(1) In General —
In the case of a person who transfers property to a corporation and receives nonqualified
preferred stock—
I.R.C. § 351(g)(1)(A) —
subsection (a) shall not apply to such transferor, and
I.R.C. § 351(g)(1)(B) —
if (and only if) the transferor receives stock other than nonqualified preferred
stock—
I.R.C. § 351(g)(1)(B)(i) —
subsection (b) shall apply to such transferor;
and
I.R.C. § 351(g)(1)(B)(ii) —
such nonqualified preferred stock shall be treated as other property for purposes
of applying subsection
(b).
I.R.C. § 351(g)(2) Nonqualified Preferred Stock —
For purposes of paragraph (1)—
I.R.C. § 351(g)(2)(A) In General —
The term “nonqualified preferred stock”
means preferred stock if—
I.R.C. § 351(g)(2)(A)(i) —
the holder of such stock has the right to require the issuer or a related person
to redeem or purchase the stock,
I.R.C. § 351(g)(2)(A)(ii) —
the issuer or a related person is required to redeem or purchase such stock,
I.R.C. § 351(g)(2)(A)(iii) —
the issuer or a related person has the right to redeem or purchase the stock and,
as of the issue date, it is more likely than not that such right will be exercised,
or
I.R.C. § 351(g)(2)(A)(iv) —
the dividend rate on such stock varies in whole or in part (directly or indirectly)
with reference to interest rates, commodity prices, or other similar indices.
I.R.C. § 351(g)(2)(B) Limitations —
Clauses (i), (ii), and (iii) of subparagraph (A) shall apply only if the right or obligation referred to therein may be exercised
within the 20-year period beginning on the issue date of such stock and such right
or obligation is not subject to a contingency which, as of the issue date, makes
remote the likelihood of the redemption or purchase.
I.R.C. § 351(g)(2)(C) Exceptions For Certain Rights Or Obligations
I.R.C. § 351(g)(2)(C)(i) In General —
A right or obligation shall not be treated as described in clause (i), (ii), or (iii) of subparagraph (A) if—
I.R.C. § 351(g)(2)(C)(i)(I) —
it may be exercised only upon the death, disability, or mental incompetency of the
holder, or
I.R.C. § 351(g)(2)(C)(i)(II) —
in the case of a right or obligation to redeem or purchase stock transferred in
connection with the performance of services for the issuer or a related person (and
which represents reasonable compensation), it may be exercised only upon the holder's
separation from service from the issuer or a related person.
I.R.C. § 351(g)(2)(C)(ii) Exception —
Clause (i)(I) shall not apply if the stock relinquished in the exchange, or the stock acquired
in the exchange is in—
I.R.C. § 351(g)(2)(C)(ii)(I) —
a corporation if any class of stock in such corporation or a related party is readily
tradable on an established securities market or otherwise, or
I.R.C. § 351(g)(2)(C)(ii)(II) —
any other corporation if such exchange is part of a transaction or series of transactions
in which such corporation is to become a corporation described in subclause (I).
I.R.C. § 351(g)(3) Definitions —
For purposes of this subsection—
I.R.C. § 351(g)(3)(A) Preferred Stock —
The term “preferred stock” means stock which is limited and preferred as to dividends
and does not participate in corporate growth to any significant extent. Stock shall
not be treated as participating in corporate growth to any significant extent unless
there is a real and meaningful likelihood of the shareholder actually participating
in the earnings and growth of the corporation.
If there is not a real and meaningful likelihood that dividends beyond any limitation
or preference will actually be paid, the possibility of such payments will be disregarded
in determining whether stock is limited and preferred as to dividends.
I.R.C. § 351(g)(3)(B) Related Person —
A person shall be treated as related to another person if they bear a relationship
to such other person described in section 267(b) or 707(b).
I.R.C. § 351(g)(4) Regulations —
The Secretary may prescribe such regulations as may be necessary or appropriate
to carry out the purposes of this subsection and sections 354(a)(2)(C), 355(a)(3)(D), and 356(e). The Secretary may also prescribe regulations, consistent with the treatment under
this subsection and such sections, for the treatment of nonqualified preferred stock
under other provisions of this title.
I.R.C. § 351(h) Cross References
I.R.C. § 351(h)(1) —
For special rule where another party to the exchange assumes a liability, see section
357.
I.R.C. § 351(h)(2) —
For the basis of stock or property received in an exchange to which this section
applies, see sections 358 and 362.
I.R.C. § 351(h)(3) —
For special rule in the case of an exchange described in this section but which
results in a gift, see section 2501 and following.
I.R.C. § 351(h)(4) —
For special rule in the case of an exchange described in this section but which
has the effect of the payment of compensation by the corporation or by a transferor,
see section 61(a)(1).
I.R.C. § 351(h)(5) —
For coordination of this section with section 304, see section 304(b)(3).
(Aug. 16, 1954, ch. 736, 68A Stat. 111; Nov. 13, 1966,
Pub. L. 89-809, title II, Sec. 203(a), (b), 80 Stat. 1577; Oct. 4, 1976, Pub. L. 94-455, title XIX, Sec. 1901(a)(48)(A), (B), 90 Stat. 1772; Dec. 24, 1980, Pub. L. 96-589, Sec. 5(e), 94 Stat. 3406; Sept. 3, 1982, Pub. L. 97-248, title II, Sec. 226(a)(1)(B), 96 Stat. 491; Nov. 10, 1988, Pub. L. 100-647, title I, Sec. 1018(d)(5)(G), 102 Stat. 3580; Dec. 19, 1989, Pub. L. 101-239, title VII, Sec. 7203(a),
(b), 103 Stat. 2333; Nov. 5, 1990, Pub. L. 101-508, title XI, Sec. 11704(a)(3), 104 Stat. 1388-518; Pub. L. 105-34, title X, Sec. 1002(a), 1012(c), 1014(a), Aug. 5, 1997, 111 Stat 788; Pub. L. 105-206, title VI, Sec. 6010(c), (e), July 22, 1998, 112 Stat 685; Pub. L. 105-277, title IV, Sec. 4003(f)(1), Oct. 21, 1998, 112 Stat 2681; Pub. L. 106-36, title III, Sec. 3001(d)(1), June 25, 1999, 113 Stat. 127; Mar. 9, 2002, Pub. L. 107-147, title IV, Sec. 417(9), 116 Stat. 21; Oct. 22, 2004, Pub. L. 108-357, title VIII, Sec. 899(a), 118 Stat. 1418; Dec. 21, 2005, Pub. L. 109-135, title IV, Sec. 403(kk), 119 Stat. 2577.)
BACKGROUND NOTES
AMENDMENTS
2005 - Subsec. (g)(3)(A). Pub. L. 109-135, Sec. 403(kk), amended subpar. (A) by adding the sentence at the end.
2004 - Subsec. (g)(3)(A). Pub. L. 108-357, Sec. 899(a), amended subpar. (A) by adding the sentence at the end.
2002 - Subsec. (h)(1). Pub. L. 107-147, Sec. 417(9), amended par. (1) by inserting a comma after “liability”.
1999 - Subsec. (h)(1). Pub. L. 106-36, Sec. 3001(d)(1), amended par. (1) by striking “, or acquires property subject to a liability,” before
“see section 357”.
1998 - Subsec. (c)(2). Pub. L. 105-277, Sec. 4003(f)(1), amended par. (2) by inserting “, or the fact that the corporation whose stock was
distributed issues additional stock,” after “dispose of part or all of the distributed
stock”.
Subsec. (c). Pub. L. 105-206, Sec. 6010(c)(3)(A), amended subsec. (c). Prior to amendment it read as follows:
“(c) Special Rules Where Distribution to Shareholders.--
In determining control for purposes of this section--
“(1) the fact that any corporate transferor distributes part or all of the stock
in the corporation which it receives in the exchange to its shareholders shall not
be taken into account, and
“(2) if the requirements of section 355 are met with respect to such distribution,
the shareholders shall be treated as in control of such corporation immediately after
the exchange if the shareholders own (immediately after the distribution)
stock possessing--
“(A) more than 50 percent of the total combined voting power of all classes of stock
of such corporation entitled to vote, and
“(B) more than 50 percent of the total value of shares of all classes of stock of
such corporation.”
Subsec. (g)(1). Pub. L. 105-206, Sec. 6010(e)(1), amended par. (1) by inserting
“and” at the end of subpar. (A), by striking subpars. (B) and (C);
and by adding subpar. (B). Prior to amendment subpars. (B) and (C)
read as follows:
“(B) subsection (b) shall apply to such transferor, and
“(C) such nonqualified preferred stock shall be treated as other property for purposes
of applying subsection (b).”
1997 - Subsec. (c). Pub. L. 105-34, Sec. 1012(c)(1), amended subsec. (c). Prior to amendment it read as follows:
“(c) Special rule
In determining control, for purposes of this section, the fact that any corporate
transferor distributes part or all of the stock which it receives in the exchange
to its shareholders shall not be taken into account.”
Subsec. (e)(1). Pub. L. 105-34, Sec. 1002(a), amended par. (1) by adding the material following the first sentence.
Subsec. (g). Pub. L. 105-34, Sec. 1014(a), redesignated subsec. (g) as subsec.
(h) and added a new subsec. (h).
1990 - Subsec. (e)(2). Pub. L. 101-508 substituted ‘is used’ for
‘are used’.
1989 - Subsec. (a). Pub. L. 101-239, Sec. 7203(a), struck out ‘or securities’ after ‘stock’.
Subsecs. (b), (d), (e)(2). Pub. L. 101-239, Sec. 7203(b)(1), struck out ‘or securities’ after ‘stock’.
Subsec. (g)(2). Pub. L. 101-239, Sec. 7203(b)(2), substituted ‘stock or property’
for ‘stock, securities, or property’.
1988 - Subsecs. (f), (g). Pub. L. 100-647 added subsec. (f) and redesignated former subsec. (f) as (g).
1982 - Subsec. (f)(5). Pub. L. 97-248 added par. (5).
1980 - Subsec. (a). Pub. L. 96-589, Sec. 5(e)(2), struck out provision that stock or securities issued for services shall not be considered
as issued in return for property for purposes of this section.
Subsec. (d). Pub. L. 96-589, Sec. 5(e)(1), added subsec. (d). Former subsec.
(d) redesignated (e)(1).
Subsec. (e). Pub. L. 96-589, Sec. 5(e)(2), redesignated former subsec. (d)
as par. (1) and added par. (2). Former subsec. (e) redesignated (f).
Subsec. (f). Pub. L. 96-589, Sec. 5(e)(1), redesignated former subsec. (e)
as (f).
1976 - Subsec. (a). Pub. L. 94-455, Sec. 1901(a)(48)(A), struck out ‘(including, in the case of transfers made on or before June 30, 1967,
an investment company)’ after ‘property is transferred to a corporation’.
Subsec. (d). Pub. L. 94-455, Sec. 1901(a)(48)(B), among other changes, substituted
‘Exception’ for ‘Application of June 30, 1967, date’ in heading and in text provision
that this section does not apply to a transfer of property to an investment company
for provisions relating to treatment of a transfer of property to an investment company
as made on or before June 30, 1967.
1966 - Subsec. (a). Pub. L. 89-809, Sec. 203(a), inserted
‘(including, in the case of transfers made on or before June 30, 1967, an investment
company)’ after ‘if property is transferred to a corporation’.
Subsecs. (d), (e). Pub. L. 89-809, Sec. 203(b), added subsec. (d) and redesignated former subsec. (d) as (e).
EFFECTIVE DATE OF 2005 AMENDMENT
Amendment by Sec. 403(kk) of Pub. L. 109-135 effective as if included in the provisions of the American Jobs Creation Act of 2004
[Pub. L. 108-357, Sec. 899] to which it relates.
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Sec. 899(a) of Pub. L. 108-357 effective for transactions after May 14, 2003.
EFFECTIVE DATE OF 2002 AMENDMENT
Amendment by Sec. 417(9) of Pub. L. 107-147 effective on the date of the enactment of this Act [enacted: Mar. 9, 2002].
EFFECTIVE DATE OF 1998 AMENDMENTS
Amendment by Sec. 3001(d)(1) of Pub. L. 106-36 applicable to transfers after October 18, 1998.
EFFECTIVE DATE OF 1998 AMENDMENTS
Amendment by Sec. 4003(f)(1) of Pub. L. 105-277 applicable as if included in the provisions of the Taxpayer Relief Act of 1997 to
which it relates.
Amendment by Sec. 6010(c) of Pub. L. 105-206 applicable as if included in the amendments made by the Taxpayer Relief Act of 1997
to which it relates [Effective Date of Pub. L. 105-34, Sec. 1012: Transfers after Aug. 5, 1997, but see transition rule set forth below].
Amendment by Sec. 6010(e) of Pub. L. 105-206 applicable as if included in the amendments made by the Taxpayer Relief Act of 1997
to which they relate [Effective Date of Pub. L. 105-34, Sec. 1014: Transactions after June 8, 1997, but see transition rule set forth below].
EFFECTIVE DATE OF 1997 AMENDMENTS
Amendment by Sec. 1002(a) of Pub. L. 105-34 applicable to transfers after June 8, 1997, in taxable years ending after such date.
Sec. 1002(b)(2) of Pub. L. 105-34 provided the following special rule:
“(2) Binding contracts.--The amendment made by subsection (a) shall not apply to any
transfer pursuant to a written binding contract in effect on June 8, 1997, and at
all times thereafter before such transfer if such contract provides for the transfer
of a fixed amount of property.”
Amendment by Sec. 1012(c)(1) of Pub. L. 105-34 applicable to transfers after the date of the enactment of this Act [Aug. 5, 1997].
Sec. 1012(d)(3)
of Pub. L. 105-34 provided the following transition rule:
“(3) Transition rule.--The amendments made by this section shall not apply to any
distribution pursuant to a plan (or series of related transactions) which involves
an acquisition described in section 355(e)(2)(A)(ii)
of the Internal Revenue Code of 1986 (or, in the case of the amendments made by subsection (c), any transfer) occurring
after April 16, 1997, if such acquisition or transfer is--
(A) made pursuant to an agreement which was binding on such date and at all times
thereafter,
(B) described in a ruling request submitted to the Internal Revenue Service on or
before such date, or
(C) described on or before such date in a public announcement or in a filing with
the Securities and Exchange Commission required solely by reason of the acquisition
or transfer.
This paragraph shall not apply to any agreement, ruling request, or public announcement
or filing unless it identifies the acquirer of the distributing corporation or any
controlled corporation, or the transferee, whichever is applicable.
Amendment by Sec. 1014(a) of Pub. L. 105-34 applicable to transactions after June 8, 1997. Sec. 1014(f)(2) of Pub. L. 105-34 provided the following transition rule:
“(2) Transition rule.--The amendments made by this section shall not apply to any
transaction after June 8, 1997, if such transaction is--
(A) made pursuant to a written agreement which was binding on such date and at all
times thereafter,
(B) described in a ruling request submitted to the Internal Revenue Service on or
before such date, or
(C) described on or before such date in a public announcement or in a filing with
the Securities and Exchange Commission required solely by reason of the transaction.”
EFFECTIVE DATE OF 1989 AMENDMENT
Section 7203(c) of Pub. L. 101-239 provided that:
‘(1) In general. - Except as provided in this subsection, the amendments made by this
section (amending this section) shall apply to transfers after October 2, 1989, in
taxable years ending after such date.
‘(2) Binding contract. - The amendments made by this section shall not apply to any
transfer pursuant to a written binding contract in effect on October 2, 1989, and
at all times thereafter before such transfer.
‘(3) Corporate transfers. - In the case of property transferred (directly or indirectly
through a partnership or otherwise)
by a C corporation, paragraphs (1) and (2) shall be applied by substituting
‘July 11, 1989’ for ‘October 2, 1989’. The preceding sentence shall not apply where
the corporation meets the requirements of section 1504(a)(2) of the Internal Revenue Code of 1986 with respect to the transferee corporation
(and where the transfer is not part of a plan pursuant to which the transferor subsequently
fails to meet such requirements).'
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1018(d)(5)(G) of Pub. L. 100-647 provided that the amendment made by that section is effective with respect to transfers
on or after June 21, 1988.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-248 applicable to transfers occurring after Aug. 31, 1982, except for certain transfers
pursuant to an application to form a BHC filed with the Federal Reserve Board before
Aug. 16, 1982, see section 226(c) of Pub. L. 97-248, set out as a note under section 304 of this title.
EFFECTIVE DATE OF 1980 AMENDMENT
Amendment by Pub. L. 96-589 applicable to transactions which occur after Dec. 31, 1980, other than transactions
which occur in proceedings in bankruptcy cases or similar judicial proceedings or
in proceedings under Title 11, Bankruptcy, commencing on or before Dec. 31, 1980,
except as otherwise provided, see section 7 of Pub. L. 96-589, set out as a note under section 108 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1901(a)(48)(C) of Pub. L. 94-455 provided that: ‘The amendments made by this paragraph
(amending this section) shall take effect with respect to transfers of property occurring
after the date of the enactment of this Act
(Oct. 4, 1976).’
EFFECTIVE DATE OF 1966 AMENDMENT
Section 203(c) of Pub. L. 89-809 provided that: ‘The amendments made by subsections
(a) and (b) (amending this section) shall apply with respect to transfers of property
to investment companies whether made before, on, or after the date of the enactment
of this Act (Nov. 13, 1966).’
