Discussion:Section 351

Thank you very much.

My understanding is only owners of 5% or more of publicly traded firms or at least 1% of privately held companies must list details of their transactions.

How is that simplifying the rules? Don't most business owners who choose to incorporate their businesses fall into the category that have to list the details?

I'm hoping I have read it wrong or there is a catch somewhere and I am missing it.

Does anyone have any other understanding than mine?

Thank you.

This simplifies the old regs in that orioginally there were 18 and 20 disclosure items for the transferee and transferor, respectively abd now there are only four.

You are correct, though, in that it is really not going to reduce the number of small business people who have to report because I doubt there are very few less than 1% S/Hs who make a §351 transfer to a privately-held corporation.

From TD 9264

§1.351-3 [Removed]

Par. 14. Section 1.351-3 is removed.

Par. 15. Section 1.351-3T is added to read as follows:

§1.351-3T Records to be kept and information to be filed (temporary).

(a) Significant transferor. Every significant transferor must include a statement entitled, “STATEMENT PURSUANT TO §1.351-3T(a) BY [INSERT NAME AND TAXPAYER IDENTIFICATION NUMBER (IF ANY) OF TAXPAYER], A SIGNIFICANT TRANSFEROR,” on or with such transferor's income tax return for the taxable year of the section 351 exchange. If a significant transferor is a controlled foreign corporation (within the meaning of section 957), each United States shareholder (within the meaning of section 951(b)) with respect thereto must include this statement on or with its return. The statement must include—

(1) The name and employer identification number (if any) of the transferee corporation;

(2) The date(s) of the transfer(s) of assets;

(3) The aggregate fair market value and basis, determined immediately before the exchange, of the property transferred by such transferor in the exchange; and

(4) The date and control number of any private letter ruling(s) issued by the Internal Revenue Service in connection with the section 351 exchange.

(b) Transferee corporation. Except as provided in paragraph (c) of this section, every transferee corporation must include a statement entitled, “STATEMENT PURSUANT TO §1.351-3T(b) BY [INSERT NAME AND EMPLOYER IDENTIFICATION NUMBER (IF ANY) OF TAXPAYER], A TRANSFEREE CORPORATION,” on or with its income tax return for the taxable year of the exchange. If the transferee corporation is a controlled foreign corporation (within the meaning of section 957), each United States shareholder (within the meaning of section 951(b)) with respect thereto must include this statement on or with its return. The statement must include—

(1) The name and taxpayer identification number (if any) of every significant transferor;

(2) The date(s) of the transfer(s) of assets;

(3) The aggregate fair market value and basis, determined immediately before the exchange, of all of the property received in the exchange; and

(4) The date and control number of any private letter ruling(s) issued by the Internal Revenue Service in connection with the section 351 exchange.

(c) Exception for certain transferee corporations. The transferee corporation is not required to file a statement under paragraph (b) of this section if all of the information that would be included in the statement described in paragraph (b) of this section is included in any statement(s) described in paragraph (a) of this section that is attached to the same return for the same section 351 exchange.

(d) Definitions. For purposes of this section:

(1) Significant transferor means a person that transferred property to a corporation and received stock of the transferee corporation in an exchange described in section 351 if, immediately after the exchange, such person—

(i) Owned at least five percent (by vote or value) of the total outstanding stock of the transferee corporation if the stock owned by such person is publicly traded, or

(ii) Owned at least one percent (by vote or value) of the total outstanding stock of the transferee corporation if the stock owned by such person is not publicly traded.

(2) Publicly traded stock means stock that is listed on—

(i) A national securities exchange registered under section 6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f); or

(ii) An interdealer quotation system sponsored by a national securities association registered under section 15A of the Securities Exchange Act of 1934 (15 U.S.C. 78o-3).

(e) Substantiation information. Under §1.6001-1(e), taxpayers are required to retain their permanent records and make such records available to any authorized Internal Revenue Service officers and employees. In connection with the exchange described in this section, these records should specifically include information regarding the amount, basis, and fair market value of all transferred property, and relevant facts regarding any liabilities assumed or extinguished as part of such exchange.

(f) Effective date— (1) Applicability date. This section applies to any original Federal income tax return (including any amended return filed on or before the due date (including extensions) of such original return) timely filed on or after May 30, 2006.

(2) Expiration date. The applicability of this section will expire on May 26, 2009.

My conclusion is that this provision was made mostly for those taxpayers who own stocks of public companies. I remember I owned some of AT&T wireless shares and when it merged with Cingular, I received a letter from my broker, asking me to attach the letter to my tax return. Now there is no need for such statement since average taxpayers like me would never own more than 5% of any public company.