Generally, transferring property into a corporation in exchange for its stock is a taxable event. The transaction is treated as if you sold property to the corporation in return for cash. The difference between the stock value received and the tax basis in the property transferred to the corporation will result in a gain or loss.
However, concern about a tax liability as the result of incorporating a currently unincorporated business could act as a barrier to incorporation. So, Congress enacted Section 351 to remove this barrier to incorporation of an unincorporated business.
So, from a policy stand point, it would appear that the history of the legislation would not support such a tax deferred transfer.
That being said, I found not limitation on the use of the word "property" under Section 351. In fact, the link below appears to actually recognize a stock for stock type of transfer under a 351 exchange.
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You missed my point. Is a shareholder (not a controlling shareholder) of an LLC allowed to exchange his shares for another corporation tax free? The shareholder does not control either the first or second corporation. The group of shareholder all want to do the exchange but isn't each one looked at separately related to the "control" issue?
Sec. 351. Transfer to corporation controlled by transferor(a) General ruleNo gain or loss shall be recognized if property is transferred toa corporation by one or more persons solely in exchange for stockin such corporation and immediately after the exchange such personor persons are in control (as defined in section 368(c)) of thecorporation.
368 (c) Control definedFor purposes of part I (other than section 304), part II, thispart, and part V, the term ''control'' means the ownership of stockpossessing at least 80 percent of the total combined voting powerof all classes of stock entitled to vote and at least 80 percent ofthe total number of shares of all other classes of stock of thecorporation.
YES, it will work as a group.
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