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Tax Computations
Section 351 is a code of tax law, section 351 is a part of the internal revenue code (IRC)
of the taxation of United States of America. Internal revenue code is a domestic portion of
federal statuary tax law in United States was established in 1986 in order to account for the
income for tax purpose. Various taxes are fall under the category of internal revenue code such
as income tax, excise tax, gift tax, payroll tax, estate tax and so on and all the taxes are further
comprehensively described in section codes.
Tax basis balance sheet is prepared as other ordinary balance sheet is prepared but the
difference is that the tax basis balance sheet is prepared for tax purpose. Tax basis balance sheet
provides the current deferred tax liability of a company and provides managers the overview that
all the assets are sold at their current value and all liabilities could be paid off immediately.
Transaction occurred due to the incorporation of John and Jill business venture is not
treated under section 351 because no cash is transferred in exchange of Jill’s property and in
order to compute tax for in accordance with section 351 exchanges of cash is necessary.
Therefore transaction of Jill and john’s joint venture is not treated under section 351.
Section 351 deals with the transferring of property into a corporation. General rule of
section 351 states that while transferring a property in exchange for its stock is a taxable event
therefore tax is charged according to an appropriate percentage. The transaction is taxed if a
person sold property to the corporation in return of cash. Due to the transaction difference
between the stock valued and the tax basis in the property transferred to the corporation will
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result in gain or loss. No gain or loss recognized if property is transferred in exchange of stock.
(cornell.edu, 2016)
Balance sheet
Assets
Cash
200000
Land
240000
Total assets
440000
Capital and liabilities
Reserves
290000
Stock
80000
Equities
20000
Liabilities
50000
Total liabilities and equity
440000
Major benefit of the section is this no gain or loss will be recognized and no tax liability
is booked if the exchange of property is made in contrast with stock. For sole proprietors who
want to incorporate for liability protection purposes, this is the way through which tax free
exchange is performed. After the section 351 if transfer of property to the corporation in
exchange of stock , the transfer will loses control of the corporation by a taxable sale of all or
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part of that stock to a third party who does not also transfer property to the corporation in
exchange of stock .
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References
cornell.edu. (2016). U.S. Code § 351 - Transfer to corporation controlled by transferor.
Retrieved 1 18, 2016, from cornell.edu: https://www.law.cornell.edu/uscode/text/26/351