Compliance & tax
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
In Octelligence
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 recordsUS tax structuring
Track 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.