IRS Rules Transfer Of Assets Constitutes A Section 351

The IRS said in a private letter ruling that a transfer of assets to a corporation by its sole shareholder constituted a transaction under Section 351, notwithstanding that the corporation would distribute assets to its shareholder prior to that contribution.

In PLR 201338040, a publicly traded, widely held corporation (Parent) directly wholly owned a subsidiary corporation (Sub 1). Sub 1 owned all the stock of three other corporations (the Subs). For valid business reasons, Parent proposed to undertake the following transactions:

(i) Sub 1 would borrow cash from a third-party lender,
(ii) Sub 1 would then distribute that cash and the stock of the subs to Parent (the distribution),