Question

Select all that apply

In order to qualify for deferral under Section 351, which of the following requirements must be met? (Check all that apply.)

A. Immediately after the transfer, the contributing shareholders must be in control.

B. Shareholders transfer property in exchange for stock.

C. The transfer must be solely in exchange for stock, and no boot (non-stock property or cash) is received by the contributing shareholders.

Answer 1

Under Section 351, shareholders must transfer property to a corporation for stock and maintain control post-transaction, with transactions needing to be solely for stock. Issuing stock allows companies to raise capital for expansion, but involves complex processes including adhering to SEC regulations.

Step-by-step explanation:

To qualify for a deferral under Section 351, several requirements must be met according to the Internal Revenue Code. The contributing shareholders must transfer property to a corporation, and following the transaction, they must have control of the corporation, which is defined as owning at least 80% of the stock, both in terms of voting power and value.

The transaction must indeed be solely in exchange for stock. If any boot is received, such as cash or non-stock property, it needs to be calculated separately for tax purposes, and the deferral of gain may be partially lost. Therefore, when shareholders contribute property to a corporation, they need to ensure that the exchange is meticulously structured to comply with Section 351's provisions to qualify for deferral.