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(B) to which section 361
applies by reason of a plan of
reorganization within the meaning
of section 368(a)(1)(D),
if the sum of the amount of the liabilities assumed,
plus the amount of the liabilities to which the
property is subject, exceeds the total of the adjusted
basis of the property transferred pursuant to such
exchange, then such excess shall be considered as a
gain from the sale or exchange of a capital asset or of
property which is not a capital asset, as the case may
be.
Thus, for present purposes, section 357(a) provides the
general rule that, in a section 351 nonrecognition exchange, the
effect of section 351 is not nullified even though as part of the
consideration the transferee assumes a liability of the
transferor, or acquires property in the exchange which is subject
to a liability. Then, section 357(c)(1) provides an exception to
the general rule; namely, that if the sum of the liabilities
assumed plus the amount of the liabilities to which the
transferred property is subject exceeds the adjusted basis of the
property, then the excess is treated as a gain from the sale or
exchange of property.
Respondent argues that, by virtue of section 357(c)(1),
petitioners must recognize gain resulting from the transfer to
their wholly owned corporation of property subject to liabilities
in excess of petitioners' basis in the property.
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