Question

The general rule when a corporation assumes liabilities attached to property transferred by a shareholder in a §351 transaction is the liabilities assumed are ______.

a. treated as additional consideration.
b. excluded from consideration.
c. not relevant to the transaction.
d. deducted from the shareholder's basis in the stock received.

Answer 1

In a §351 transaction, the liabilities assumed by a corporation are excluded from consideration, which allows shareholders to limit their liability to their investment and makes it easier for the corporation to raise or borrow money.

Step-by-step explanation:

The general rule when a corporation assumes liabilities attached to property transferred by a shareholder in a §351 transaction is that the liabilities assumed are excluded from consideration. In such cases, shareholder liability is limited to the amount they have invested in the corporation. This is partly what makes it easier to raise or borrow money for expansion or other business purposes. Corporations also have the ability to choose to sell stock to finance company growth. Hence, the correct answer to the multiple-choice question is: b. excluded from consideration.