§351. Transfer to corporation controlled by transferor

(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.

(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-

(1) gain (if any) to such recipient shall be recognized, but not in excess of-

(A) the amount of money received, plus

(B) the fair market value of such other property received; and

(2) no loss to such recipient shall be recognized.

(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.

(d) Services, certain indebtedness, and accrued interest not treated as property

For purposes of this section, stock issued for-

(1) services,

(2) indebtedness of the transferee corporation which is not evidenced by a security, or

(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.

(e) Exceptions

This section shall not apply to-

(1) Transfer of property to an investment company

A transfer of property to an investment company.

(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.

(f) Treatment of controlled corporation

If-

(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

(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.

(g) Cross references

(1) For special rule where another party to the exchange assumes a liability, or acquires property subject to a liability, see section 357.

(2) For the basis of stock or property received in an exchange to which this section applies, see sections 358 and 362.

(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.

(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).

(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, §203(a), (b), 80 Stat. 1577 ; Oct. 4, 1976, Pub. L. 94–455, title XIX, §1901(a)(48)(A), (B), 90 Stat. 1772 ; Dec. 24, 1980, Pub. L. 96–589, §5(e), 94 Stat. 3406 ; Sept. 3, 1982, Pub. L. 97–248, title II, §226(a)(1)(B), 96 Stat. 491 ; Nov. 10, 1988, Pub. L. 100–647, title I, §1018(d)(5)(G), 102 Stat. 3580 ; Dec. 19, 1989, Pub. L. 101–239, title VII, §7203(a), (b), 103 Stat. 2333 ; Nov. 5, 1990, Pub. L. 101–508, title XI, §11704(a)(3), 104 Stat. 1388–518 .)

Amendments

1990-Subsec. (e)(2). Pub. L. 101–508 substituted "is used" for "are used".

1989-Subsec. (a). Pub. L. 101–239, §7203(a), struck out "or securities" after "stock".

Subsecs. (b), (d), (e)(2). Pub. L. 101–239, §7203(b)(1), struck out "or securities" after "stock".

Subsec. (g)(2). Pub. L. 101–239, §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, §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, §5(e)(1), added subsec. (d). Former subsec. (d) redesignated (e)(1).

Subsec. (e). Pub. L. 96–589, §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, §5(e)(1), redesignated former subsec. (e) as (f).

1976-Subsec. (a). Pub. L. 94–455, §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, §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, §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, §203(b), added subsec. (d) and redesignated former subsec. (d) as (e).

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]."

Cross References

Assumption of liability, see section 357 of this title.

Basis of property received in liquidations, purchase defined, see section 334 of this title.

Basis to corporations, see section 362 of this title.

Basis to distributees, see section 358 of this title.

Foreign corporations, see section 367 of this title.

Section Referred to in Other Sections

This section is referred to in sections 168, 197, 304, 306, 336, 338, 341, 346, 355, 357, 358, 362, 367, 368, 382, 683, 721, 724, 735, 995, 1202, 1245, 1250, 1276, 6038B of this title.