Section 351 contribution
US tax-deferred contribution of property to a controlled corporation in exchange for stock. The US analog to Canada's Section 85 rollover.
Definition
Section 351 of the Internal Revenue Code permits the contribution of property to a corporation in exchange for stock without recognizing gain or loss, provided the contributors collectively own at least 80% of the corporation's voting power and value immediately after the exchange. It is the workhorse US tax-deferral provision for forming corporations, contributing intellectual property, and transferring assets within a corporate group. Conceptually similar to Canada's Section 85 rollover, but the mechanics differ: § 351 is automatic if the conditions are met — no joint election required.
Same concept, different references
| US (IRC) | Section 351(a) — Transfer to controlled corporation |
|---|---|
| US (IRC) | Section 368(c) — 80% control test |
| State | Most states conform; some require additional filings |
| Canadian analog | Section 85 rollover (requires Form T2057 election) |
When Section 351 applies
Section 351 applies automatically — no election form — when three conditions are all met:
- Property: the contribution must be of property (not services). Cash counts as property
- Solely for stock: in exchange, the contributor receives only stock of the transferee corporation. Receipt of boot (cash or other property) is permitted but boot is taxable
- Control: the contributors as a group must own at least 80% of the voting power and 80% of each non-voting class of stock immediately after the exchange (the IRC § 368(c) control test)
Common Section 351 transactions
Section 351 is the foundation of US corporate tax-deferred transactions:
- Initial incorporation: founder contributes IP, cash, or business assets in exchange for founder stock
- Holdco formation: existing shareholders contribute opco stock to a new holdco in exchange for holdco stock
- Inversion transactions: cross-border restructurings (subject to anti-inversion rules)
- Joint venture formations: multiple parties contribute property to a new C corporation
- S corp to C corp conversion structures: often combined with F reorganization
Section 351 vs Canada's Section 85
Both provisions enable tax-deferred property-for-stock exchanges, but the mechanics differ significantly:
- Election: Canadian § 85 requires a joint election on Form T2057. US § 351 is automatic if conditions are met
- Control threshold: § 85 has no fixed percentage threshold for transferor control. § 351 requires 80% control
- Elected amount: § 85 allows the parties to choose the elected amount (controlling the gain recognized). § 351 doesn't permit this — gain or loss is determined by the structure
- Boot treatment: Both allow some boot; the calculations differ
Section 351 transactions tracked in corporate records.
Octelligence records the stock issuances flowing from a § 351 contribution, with documentation links to the underlying contribution agreement, valuation, and any related tax filings.
View corporate recordsTrack every US tax structure at the share level.
Section 351, F reorganization, 338(h)(10), S corp election, AAA, 199A, 1244, BIG tax. Recorded against the corporation, surfaced when relevant.