A. Policy

• Jurisdiction: New York

A. Policy

Congress did not want the general tax rules of I.R.C. § 1001 to apply to exchanges to discourage the formation of corporations, so I.R.C. § 351 was enacted to provide nonrecognition of gain or loss to a taxpayer on the transfer of the taxpayer’s appreciated property to a corporation in exchange for the corporation’s stock when that transfer is a mere change in the form of the taxpayer’s investment.⁶⁷⁹ Section 351 of the I.R.C. allows taxpayers (transferors) to transfer property to a controlled corporation in exchange for the corporation’s stock without the recognition of gain (or loss) to the transferors even though the transferors realized gain (or loss) on the transfer. Section 351 of the I.R.C. provides that securities (e.g., bonds and notes) received by a transferor are treated as boot.⁶⁸⁰

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Notes:

^[679] See Bittker & Eustice, ¶ 3.01 (citing, e.g., Portland Oil Co. v. Comm’r, 109 F.2d 479 (1st Cir.), cert. denied, 310 U.S. 650 (1940)); see also S. Rep. No. 275, 67th Cong., 1st sess., reprinted in 1939-1 CB (pt. 2) 181, 188–89. Cf. e.g., the formation of a European Company (i.e., Societas Europeae or SE) (by merger of two or more existing corporations from at least two Member States, establishment of a holding company, formation of a subsidiary, or transformation of an existing corporation); Eric Cafritz and James Gillespie, The Societas Europeae, Thirty Years Later, 9 N. Y. Bus. Law J. 14 (Spring 2005) (Council Regulation on the...