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Definition of Section 351 Exchange

Section 351 of the Internal Revenue Code (IRC) provides a tax-free mechanism for individuals or companies to transfer assets to a corporation in exchange for its stock. If certain conditions are met, namely the transferors are in control of the corporation immediately after the exchange, and the exchange is not for services or certain types of debt, then neither the transferring party nor the corporation recognizes a gain or loss on the transaction. This provision allows business owners to contribute assets to a corporation, such as when forming a new business or capitalizing an existing one, without immediate tax consequences.