Entity formation and restructuring
Area 4: Special Tax Transactions (10-20%)
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Topics
- Tax-free reorganizations (Type A-G)
- Section 338 elections
Study Frameworks
Entity Formation and Liquidation — Key IRC Sections
Tax-Deferred Formation and Taxable Liquidation
Formation (Tax-Deferred)
IRC 351 — Corporate Formation
Property for stock; transferors must have 80% control immediately after
Boot received triggers gain recognition
Basis: substituted (carryover) basis in stock
IRC 721 — Partnership Formation
No gain/loss recognized on contribution of property
No control requirement (unlike 351)
Basis: carryover basis; holding period tacks
Liquidation
IRC 331 — Shareholder Treatment
Treated as sale/exchange of stock
Gain/loss = FMV of distribution - stock basis
IRC 332 — Subsidiary Liquidation
Tax-free to 80%+ parent corporation
Parent takes carryover basis in assets (IRC 334(b)(1))
Minority shareholders use IRC 331 rules
IRC 336 — Corporate-Level Gain/Loss
Corporation recognizes gain/loss as if assets sold at FMV
Exception: no gain/loss in IRC 332 liquidation to parent (IRC 337)