Section 351 Control Test: Why the 80% Requirement Matters
Section 351 depends on the transferors controlling the corporation immediately after the exchange.
Property transfer
One or more persons transfer property to a corporation in exchange for stock.
Control
The transferors, as a group, must satisfy the statutory control threshold immediately after the exchange.
Services issue
Stock received for services does not count the same way as qualifying property in applying the rule.
Exam strategy
Identify who transferred property, what stock they received, and whether the group meets the control threshold.
The takeaway
Section 351 nonrecognition depends heavily on the transferors meeting the statutory control requirement.
Related Summit resources
FAQ
What is the core idea?
Section 351 nonrecognition depends heavily on the transferors meeting the statutory control requirement.
What should you identify first?
Section 351 depends on the transferors controlling the corporation immediately after the exchange.
Why does this matter on the CPA Exam?
Understand the control requirement for tax-free transfers of property to a corporation.