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Respondent acknowledges that petitioner was entitled to
nonrecognition of gain under section 351 upon the transfer of assets
to SIC in exchange for its stock25 but argues that petitioner
recognized gain under section 311(b) on the immediately following
distribution of the SIC stock to Arnold in redemption of his stock in
petitioner. We agree with respondent.
a. MIC's Transfer of Assets to SIC
Under section 351(a), a transfer of property to a corporation
solely in exchange for its stock does not trigger a recognition event,
provided that immediately after the transfer the transferor or
transferors “are in control (as defined in section 368(c))” of the
transferee. Section 351(c) modifies the controlling interest
requirement, providing that, in determining control for this purpose,
the fact that a corporate transferor distributes to its shareholders
all or part of the stock of the transferee “shall not be taken into
account.”
The June 15, 1988, transfer of assets by MIC to SIC, solely in
exchange for the stock of SIC, is a nonrecognition event under section
351(a). Immediately after the transfer, MIC received all the stock of
SIC, which it thereupon distributed to one of its shareholders,
Arnold. By reason of section 351(c), the distribution of SIC stock to
25 The record is not clear whether petitioner received the
stock of SIC on May 31, 1988, the date of its incorporation, or
June 15, 1988, the effective date of the transfer of assets from
petitioner to SIC. Because respondent acknowledges on brief that
petitioner’s basis in SIC stock is determined under secs. 351 and
358, we treat the operative events as having occurred
simultaneously.
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