Question

Under an exception to the general rule, a liability transferred to a corporation in a Section 351 transaction will NOT be treated as boot unless the purpose of the transaction is

Answer 1

A liability transferred to a corporation in a Section 351 transaction will not be treated as boot unless additional consideration other than stock is involved.

Step-by-step explanation:

In a Section 351 transaction, a liability transferred to a corporation will not be treated as boot unless the purpose of the transaction is to receive additional consideration other than stock. Boot refers to any consideration received in a transaction that is not stock.

For example, if an individual contributes property with a fair market value of $100,000 and a liability of $30,000 to a corporation in exchange for stock, the liability will not be treated as boot if the purpose of the transaction is solely to receive stock as consideration.

However, if the purpose of the transaction is to receive cash or other assets in addition to stock, the liability transferred will be treated as boot.