The Controller was approached by some business colleagues about doing a Section 351 transaction for the formation of a new separate corporation. Big Corporation has a nice parcel of land that they bought for $10,000 but it is worth now $1,000,000. Big Corporation does not want to just sell it because that would be an immediate recognized gain of $990,000 on their tax return. But the Controller heard that if that land were contributed to the new corporation for stock in the new corporation worth $1,000,000, it would not be taxable. Can a Section 351 transaction defer the taxable income if that property is contributed?
The Controller was approached by some business colleagues about doing a Section 351 transaction for the formation of a new separate corporation. Big Corporation has a nice parcel of land that they bought for $10,000 but it is worth now $1,000,000. Big Corporation does not want to just sell it because that would be an immediate recognized gain of $990,000 on their tax return. But the Controller heard that if that land were contributed to the new corporation for stock in the new corporation worth $1,000,000, it would not be taxable. Can a Section 351 transaction defer the taxable income if that property is contributed?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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The Controller was approached by some business colleagues about doing a Section 351 transaction for the formation of a new separate corporation. Big Corporation has a nice parcel of land that they bought for $10,000 but it is worth now $1,000,000. Big Corporation does not want to just sell it because that would be an immediate recognized gain of $990,000 on their tax return. But the Controller heard that if that land were contributed to the new corporation for stock in the new corporation worth $1,000,000, it would not be taxable. Can a Section 351 transaction defer the taxable income if that property is contributed?
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