§351 Tax Consequences to Transferree Corporation

Corporations recognize no gain or loss when they issue their own stock in exchange for property or services.. They do not recognize G/L when they exchange their own debt instruments for property or services. However, they do recognize gain when transferring appreciated property as part of a §351 exchange.


A corp that acquires property in exchange for its stock in a transaction that is taxable to the transferor takes a current cost (FMV) basis in the property. But if the exchange meets the requirements for nonrecognition treatment under §351 the basis in property is computed thus: start with the transferors' adjust basis, add the gain recognized by the transferor, and subtract the reduction for loss property. This yields the transferee corp's basis in property acquired.


Section 362(e)(2) prevents "double losses" from being generated by shareholders who transfer loss property to a corporation. So we cannot aggregate built-in losses.