Do these 3 things before closing this tab:
1Clear out junk files and repair common Windows errors2Fix the driver behind crashes, sound loss and screen glitches3Repair Windows errors before they cause bigger problemsiTechGuides is reader-supported. When you buy through links on our site, we may earn an affiliate commission. As an Amazon Associate I earn from qualifying purchases. Learn more
A Section 351 exchange can defer gain when one or more people transfer property to a corporation solely for its stock and, immediately afterward, those transferors collectively control the corporation. Control generally means at least 80% of the combined voting power and at least 80% of every other class of shares. The result changes when the corporation assumes liabilities, the transfer includes services, the debt exceeds the transferred property’s adjusted basis, or the assumption is primarily tax motivated.
The analysis is transaction-specific. You must separate property from services, test ownership immediately after the exchange, identify every liability and how it is measured, apply the business-purpose and tax-avoidance rule, and then compute transferor stock basis under Section 358 and corporate asset basis under Section 362(a). The Internal Revenue Service cautions that the Internal Revenue Code must be read with Treasury regulations and court decisions; an illustration cannot guarantee that a particular formation or reorganization qualifies.
What Section 351 does—and what it does not do
Section 351(a) is a nonrecognition rule. The Internal Revenue Service summarized it in Internal Revenue Bulletin 2015-21 this way: no gain or loss is recognized when property is transferred to a corporation by one or more persons solely in exchange for stock and the transferors are in control immediately after the exchange. “Nonrecognition” generally means the transfer is not treated as a taxable sale at that moment; it does not erase built-in gain. Instead, basis rules preserve the tax history in the stock and the corporation’s assets.
Crashes, No Sound, or Screen Glitches?
Random freezes, missing sound and display glitches usually trace back to one bad driver. Find and replace yours safely.Free scan · under a minutePC Slower Than It Used to Be?
A free scan shows the junk files, broken settings and background clutter dragging Windows down - then fixes them in one click.Free scan · Windows 10 & 11Three elements must be analyzed together:
- Property: The contributor must transfer something treated as property for Section 351 purposes. Cash, equipment, real estate, inventory, intellectual property, and many other assets may qualify, subject to their own rules.
- Stock-only consideration: The exchange must be solely for stock for the basic rule to apply. Money or other property can change the amount and character of recognized income and requires the Section 358 adjustments described below.
- Immediate control: The transferor or transferor group must satisfy the 80% control test immediately after the exchange.
Debt assumptions do not automatically turn a qualifying transfer into a taxable sale. They have their own rules under Section 357, including a separate rule that can force gain when liabilities exceed basis and another that can apply when the assumption is tax-motivated or lacks a bona fide business purpose.
#1 Best Overall
- Read Before You Buy — No Video Output: These adapters support charging and USB 2.0 data transfer, but cannot transmit video signals. Except for standard USB webcams (which use USB data only), they are not compatible with HDMI/DisplayPort cables, video-capable USB-C hubs, or docking stations with video output.
- Convert USB-A Ports to USB-C: Designed to connect USB-C earphones, cables, flash drives, card readers, and other USB-C accessories to standard USB-A ports. Plug-and-play with no drivers or software required.
- Aluminum Alloy Housing: Built with a sturdy aluminum alloy shell that aids in heat dissipation and protects against daily wear and scratches. Designed to maintain a stable and secure connection.
- Compact & Travel-Friendly: The ultra-compact design allows the adapter to stay plugged into your device without blocking adjacent ports or adding bulk, reducing wear and tear on your original USB ports.
- 12-Month Warranty: Backed by a 12-month manufacturer warranty for peace of mind. Designed to meet strict quality control standards for reliable everyday performance.
How the 80% control test works
Section 368(c), as described by the IRS, defines control as ownership of stock possessing at least 80% of the total combined voting power of all classes entitled to vote and at least 80% of the total number of shares of all other classes. Both parts matter. Meeting the voting threshold while falling below 80% of a nonvoting class does not satisfy the stated test.
Measure control immediately after the exchange
The relevant moment is immediately after the property-for-stock exchange. Measure the shares and voting rights issued and held at that point, not a later ownership percentage after a sale, redemption, option exercise, or additional financing. When several people transfer property as part of one plan, analyze whether they collectively form the transferor group that controls the corporation after the exchange.
Illustrative ownership outcomes
| Post-exchange ownership | Voting power | Other share classes | Basic Section 351 control result |
|---|---|---|---|
| Transferor owns 82% of voting stock and 82% of every other class | At least 80% | At least 80% | Meets the stated percentage thresholds, assuming the other Section 351 requirements are satisfied |
| Transferor owns 85% of voting stock but 70% of a nonvoting class | At least 80% | Below 80% | Does not meet the two-part threshold as stated in Section 368(c) |
| Transferor owns 79% of voting stock and 90% of other shares | Below 80% | At least 80% | Does not meet the voting-power threshold |
The table is an arithmetic illustration, not a conclusion about a particular capitalization. Stock rights, voting agreements, multiple classes, and the timing of issuances can affect the analysis. Document the capitalization table and the exact rights attached to each class on the exchange date.
Free tools Windows power users keep installed
One-click scans. No signup required.
Property versus services: why the distinction controls the result
Treasury regulation text reproduced in IRS guidance in 2016 states: “Stock will not be treated as issued for property if it is issued for services rendered or to be rendered to or for the benefit of the issuing corporation.” Stock issued for services therefore is not treated the same as stock issued for contributed property under Section 351.
When the transfer is entirely for services
If a person receives corporate stock for work already performed or to be performed, that stock is not property consideration for a Section 351 exchange merely because the corporation is being organized. The compensation, employment, withholding, reporting, and basis consequences must be analyzed under the rules that apply to services and equity compensation rather than assuming Section 351 nonrecognition.
Rank #2
- 5-in-1 USB-C Hub: Experience comprehensive connectivity featuring a Power Delivery input, two USB-A 2.0 ports, a USB-A 3.0 port, and an HDMI port. (Note: The USB-C power delivery input port is only for connecting an external wall charger to power your laptop and cannot power peripheral devices.)
- 90W Pass-Through Charging: Achieve optimal charging with 90W pass-through power to your laptop, supported by a total input of 100W, with the hub reserving 10W for operational efficiency. (Note: Wall charger not included.)
- Quick Data Transfers: Accelerate your productivity with rapid data transfers using a high-speed 5Gbps USB 3.0 port and two 480Mbps USB 2.0 ports.
- 4K HDMI Display: Enhance your visual experience with a hub capable of delivering 4K resolution at 30Hz in both mirror and extend modes. Please note that this hub is compatible with MacBook (macOS 12 and newer), Windows 10 and 11, ChromeOS, and laptops equipped with DP Alt Mode and Power Delivery. Note: This device is not compatible with Linux.
- What You Get: Anker USB-C Hub (5-in-1, 4K HDMI), welcome guide, 18-month warranty, and our friendly customer service.
When a transaction combines property and services
A mixed contribution must be allocated. Identify which part of the consideration is attributable to contributed property and which part is attributable to services. The property component can be tested under Section 351; the service component cannot be relabeled as property simply because both are documented in one subscription or incorporation agreement. Keep contemporaneous records showing the assets transferred, their adjusted bases, the services performed or promised, the shares issued for each component, and the valuation method used for the allocation.
Practical warning signs
- A founder contributes a small amount of cash but receives most of the shares for future management work.
- An agreement describes all shares as being issued for “technology and services” without assigning values.
- Stock is issued after services are completed, but the documents call the entire issuance a property contribution.
- The contributor’s ownership percentage is calculated without separating shares issued for services from shares issued for property.
These facts do not resolve the tax result by themselves, but they signal that the property, services, valuation, and control analyses must be separated.
What’s actually slowing this PC down?
Pick the symptom - the matching free tool is one click away.
Liabilities assumed by the corporation
Section 357(a) supplies the general rule: when the corporation assumes a transferor’s liability as part of a qualifying Section 351 exchange, the assumption generally is not treated as money or other property received and does not, by itself, prevent nonrecognition. The word “generally” is important because Sections 357(b) and 357(c) are independent exceptions.
Section 357(a): the ordinary assumption rule
Start by listing each obligation connected with the transferred property. Determine whether the corporation legally assumes it, whether the transferor remains liable, and whether the assumption is conditional or limited. A liability that remains with the transferor is not treated the same as one the corporation assumes. The documents should match the legal and economic arrangement; a bookkeeping entry alone does not establish who bears the obligation.
Section 357(b): tax-avoidance purpose or no bona fide business purpose
Under the IRS technical guidance in TL-N-386-99, an assumption can be treated as money when its principal purpose is federal tax avoidance or, absent that purpose, the arrangement lacks a bona fide business purpose. This is a purpose-based exception, not a balance-sheet test. A liability assumption can therefore create a recognition issue even when assumed debt does not exceed the transferred property’s basis.
Rank #3
- Sleek 7-in-1 USB-C Hub: Features an HDMI port, two USB-A 3.0 ports, and a USB-C data port, each providing 5Gbps transfer speeds. It also includes a USB-C PD input port for charging up to 100W and dual SD and TF card slots, all in a compact design.
- Flawless 4K@60Hz Video with HDMI: Delivers exceptional clarity and smoothness with its 4K@60Hz HDMI port, making it ideal for high-definition presentations and entertainment. (Note: Only the HDMI port supports video projection; the USB-C port is for data transfer only.)
- Double Up on Efficiency: The two USB-A 3.0 ports and a USB-C port support a fast 5Gbps data rate, significantly boosting your transfer speeds and improving productivity.
- Fast and Reliable 85W Charging: Offers high-capacity, speedy charging for laptops up to 85W, so you spend less time tethered to an outlet and more time being productive.
- What You Get: Anker USB-C Hub (7-in-1), welcome guide, 18-month warranty, and our friendly customer service.
Evaluate the business reason for the assumption: continuation of an operating business, centralized financing, creditor requirements, a normal acquisition of assets subject to debt, or another commercially coherent objective. Preserve board approvals, loan documents, closing statements, and cash-flow records that show how the arrangement operates. A business purpose does not cure every defect, but the absence of one is a specific risk under Section 357(b).
Section 357(c): liabilities greater than adjusted basis
Section 357(c) is a separate gain rule. IRS regulations describe recognized gain when the liabilities assumed exceed the total adjusted basis of the property transferred. The excess is generally recognized as gain from the sale or exchange of the transferred property.
The core computation is:
Potential Section 357(c) gain = liabilities treated as assumed − total adjusted basis of transferred property
If assumed liabilities are $900,000 and the total adjusted basis of the transferred property is $650,000, the excess is $250,000. That excess is the starting point for the Section 357(c) gain analysis, subject to the detailed liability and basis rules that apply to the transaction. If liabilities do not exceed total adjusted basis, Section 357(c) does not create gain on that comparison, although Section 357(b), boot, recognized gain from another rule, or a nonqualifying exchange can still matter.
Recourse and nonrecourse liabilities
Classify obligations as recourse or nonrecourse and measure them under the applicable regulations. The IRS’s 2025 proposed-regulation discussion contains detailed rules for determining the amount of recourse and nonrecourse liabilities for Sections 357 and 358 computations. Because those provisions were proposed, verify the law and effective dates that apply to the filing year before relying on a particular measurement method.
Rank #4
- Dual Converters, Infinite Potential：Includes 2× USB C male to USB A female adapters and 2× USB A male to USB C female adapters. Perfect for a wide range of uses—tablets with Bluetooth keyboards, expand USB ports on macbook, and more. Two different converters for all your daily needs
- Next-Level 10Gbps & 3A Charging: No more slow 480Mbps, this usb to usb c adapter has a transfer speed of up to 10Gbps, allowing you to do more transferring in less time. This usb adapter fits both USB A and USB C charger, supporting up to 3A fast charging
- Upgraded Exquisite Craftsmanship: With an aluminum alloy housing and metal connector, the usbc to usb adapter is extremely durable and sturdy. Rigorously tested to withstand more than 10,000 times of plugging and unplugging, ensuring long-lasting performance
- Broad Compatible: The usb c to usb adapter widely supports all USB C/ USB A devices like laptops, tablets, cellphones, car chargers, and phone chargers. Such as compatible with MacBook Pro/Air 2023/2022, Thunderbolt 4/3 Devices,Apple MagSafe Watch 9/8/7/SE/Ultra, iPad Pro 2022/2021, Samsung Galaxy S23/S20/S10, and iPhone 17/16/15 Pro. Plug and play
- Please Note: To reach 10Gbps speed, keep the cable under 3.3 ft. For USB A Male to USB C adapters, try flipping the USB C connector. USB C Male to USB A adapters support bidirectional 10Gbps transfer within 3.3 ft
Basis after a Section 351 transfer
Nonrecognition postpones tax; it does not make the transferred appreciation disappear. The transferor’s basis in the stock received is generally determined under Section 358. The corporation generally receives carryover basis in the transferred assets under Section 362(a).
Transferor’s stock basis under Section 358
Begin with the adjusted basis of the property transferred, then apply the Section 358 adjustments required by the actual exchange. Those adjustments account for money or other property received, recognized gain or loss, dividend treatment, and applicable liability rules. The exact ordering and amount depend on what was transferred, what was received, which liabilities were assumed, and what gain or loss was recognized.
For example, a contributor who transfers an asset with a $100,000 adjusted basis does not automatically receive stock with a $100,000 basis if the corporation also pays cash, transfers other property, or assumes liabilities that affect the statutory computation. Prepare a property-by-property schedule rather than using the corporation’s stated stock value as the tax basis.
Corporation’s asset basis under Section 362(a)
The corporation generally takes a carryover basis in the property under Section 362(a), adjusted for recognized gain and other applicable rules. The corporation’s opening tax-basis schedule should identify each asset, its transferred adjusted basis, any recognized gain allocated under the rules, and the resulting depreciation, amortization, inventory, or future disposition consequences.
Keep the two basis schedules separate
- Transferor schedule: adjusted basis transferred, liabilities, money or other property received, recognized gain or loss, and stock basis under Section 358.
- Corporate schedule: each asset’s carryover basis under Section 362(a), subsequent capital additions, and any basis adjustments required by recognized gain or other provisions.
A single “value of shares issued” figure cannot replace these schedules. Tax basis follows statutory adjustments, not simply fair market value or the corporation’s accounting equity.
Best Value
- 5-in-1 Connectivity: Equipped with a 4K HDMI port, a 5 Gbps USB-C data port, two 5 Gbps USB-A ports, and a USB C 100W PD-IN port. Note: The USB C 100W PD-IN port supports only charging and does not support data transfer devices such as headphones or speakers.
- Powerful Pass-Through Charging: Supports up to 85W pass-through charging so you can power up your laptop while you use the hub. Note: Pass-through charging requires a charger (not included). Note: To achieve full power for iPad, we recommend using a 45W wall charger.
- Transfer Files in Seconds: Move files to and from your laptop at speeds of up to 5 Gbps via the USB-C and USB-A data ports. Note: The USB C 5Gbps Data port does not support video output.
- HD Display: Connect to the HDMI port to stream or mirror content to an external monitor in resolutions of up to 4K@30Hz. Note: The USB-C ports do not support video output.
- What You Get: Anker 332 USB-C Hub (5-in-1), welcome guide, our worry-free 18-month warranty, and friendly customer service.
Step-by-step Section 351 review
- Inventory the consideration. List every asset transferred, every service performed or promised, every share class issued, and any cash or other property received.
- Classify each contribution. Mark each item as property, services, or a mixed item requiring allocation. Do not treat services as property because they appear in the same agreement.
- Build the immediate post-exchange cap table. Calculate voting power and the percentage of every other share class held by the transferor group.
- List liabilities individually. Identify the legal obligor before and after closing, classify each obligation as recourse or nonrecourse, and record the amount measured under the applicable rules.
- Run the Section 357(b) purpose test. Ask whether the principal purpose of any assumption is federal tax avoidance and whether the arrangement has a bona fide business purpose. Retain evidence supporting the commercial rationale.
- Run the Section 357(c) basis comparison. Compare liabilities treated as assumed with the total adjusted basis of transferred property. If liabilities exceed basis, calculate the excess as potential recognized gain.
- Compute stock basis. Apply Section 358 adjustments for transferred basis, money or other property, recognized gain or loss, dividend treatment, and liability rules.
- Compute corporate asset basis. Apply Section 362(a) carryover-basis rules asset by asset and record any required adjustments.
- Check the effective law. For the filing year, confirm the governing statute, final Treasury regulations, court decisions, and the status of any proposed regulation affecting liability measurement.
Worked illustrations
Property, no debt, control satisfied
A founder transfers equipment and cash solely for common stock. The founder and another property contributor together own 84% of voting power and 84% of every other class immediately afterward. No services are part of the issuance, and no liabilities are assumed. The transaction fits the basic fact pattern for Section 351 analysis, with stock basis and corporate asset basis determined under Sections 358 and 362(a).
Debt exceeds basis
A contributor transfers property with a total adjusted basis of $400,000, and the corporation assumes $525,000 of liabilities. The $125,000 excess is the potential Section 357(c) gain. The result is not avoided merely because the transferor receives stock rather than cash; the liability comparison is a separate statutory rule.
Services included with property
A founder transfers software with an adjusted basis of $20,000 and agrees to provide six months of development services in return for additional shares. The software contribution and the service arrangement must be valued and analyzed separately. Shares attributable to the services are not treated as issued for property under the quoted Treasury regulation language, so the entire issuance should not be reported as a single tax-free property exchange.
The Tool Desk
Outbyte Driver Updater FREEFix the driver behind crashes, sound loss and screen glitchesFind Drivers →Outbyte PC Repair FREERepair Windows errors before they cause bigger problemsFix Now →Debt assumption with a tax-avoidance concern
A corporation assumes a liability even though the assumption has no credible operating rationale and appears designed principally to produce a tax result. Even if the assumed amount is below the transferred property’s basis, Section 357(b) can present a separate recognition issue. The purpose analysis and the basis comparison must both be documented.
Common errors and how to correct them
- Using 80% of voting stock as the only test: Also test 80% of the total number of shares of every other class.
- Calling labor “property”: Separate services from assets and allocate the stock issued for each.
- Ignoring liabilities that remain with the transferor: Determine legal assumption and continuing liability for every obligation.
- Combining Sections 357(b) and 357(c): The first is a purpose and business-purpose rule; the second compares assumed liabilities with adjusted basis.
- Using fair market value as stock basis: Build the Section 358 schedule from adjusted basis and statutory adjustments.
- Relying on proposed rules as final law: Check the filing-year status and effective dates of the 2025 liability-measurement proposals.
- Assuming the label controls: A document titled “Section 351 contribution” does not substitute for the property, control, liability, and basis requirements.
When professional review is warranted
Obtain a Section 351 tax adviser or corporate-formation tax counsel before closing when the transaction includes debt, multiple share classes, significant services, noncash consideration, related-party obligations, contingent liabilities, or a control percentage near 80%. Provide the adviser with the capitalization table, governing documents, asset-by-asset adjusted bases, debt agreements, valuation support, service agreements, closing sequence, and the intended business purpose. Those facts determine whether the statutory requirements and exceptions apply.
Quick Recap
Product prices and availability are accurate as of the date/time indicated and are subject to change. Any price and availability information displayed on Amazon at the time of purchase will apply.
