Question

The provisions of Code Sec. 351 are:

Optional if elected by the corporation

Mandatory

Optional if elected by all the shareholders

Optional if elected by a majority of the shareholders

Answer 1

Answer (b) Mandatory

Code Sec. 351 is a mandatory nature provision provides that a transferor recognizes no gain or loss on property transferred solely in exchange for a corporation’s stock if the transferor controls the corporation immediately after the exchange. This provision relate to a tax free exchange.

There are some general requirements of code sections 351 are-

1. There should be transfer of property by person to a corporation.
2. Such transfer should be solely in exchange of stock.
3. There should be control by transferors immediately after the exchange.