IRC 351 Tax-Free Incorporation: Control Test, Boot, and Practitioner Guide

IRC 351 is the foundational non-recognition provision for business formation. It permits owners to contribute property to a corporation in exchange for stock without triggering immediate gain recognition, provided the transferors retain sufficient control. The rules appear straightforward at the surface, but the control test, the property-versus-services distinction, the boot rules, the liability assumption exceptions, and the interaction with depreciation recapture and the S corporation built-in gains tax each contain traps that can convert an expected tax-free transfer into a taxable event. This guide is a citation-anchored reference for enrolled agents, CPAs, and tax attorneys who need to apply IRC 351 accurately in client formation and restructuring matters.

All statutory citations, Treasury regulation references, and procedural guidance in this guide must be verified against the current text of the Internal Revenue Code and the applicable Treasury regulations before being relied on in any specific client matter. Tax law is subject to legislative change, regulatory revision, and evolving judicial interpretation; any detail here may be superseded. This guide is for informational purposes only and does not constitute legal or tax advice. IRC 351 transactions are fact-specific and require analysis by a qualified tax professional.

Section 1: Why IRC 351 Matters

Starting a business by contributing property to a corporation is the most common moment where IRC 351 applies. The scenario is fundamental: an individual or group of individuals owns appreciated property (real estate, equipment, intellectual property, or any other asset with a fair market value above its adjusted basis) and wants to transfer that property into a newly formed or existing corporation.

Without IRC 351, the contribution of appreciated property to a corporation would be a taxable exchange under the general principles of IRC 1001. Gain would be recognized at the difference between the fair market value received (the stock) and the adjusted basis of the property transferred. Every formation involving appreciated property would trigger an immediate tax event, regardless of whether the owner was cashing out or simply restructuring ownership.

With IRC 351, gain is deferred. The tax basis in the transferred property carries over into the corporation, and the transferor takes a corresponding basis in the stock received. The deferral comes with a structural trade-off that practitioners must understand completely:

• The transferor takes a lower basis in the stock (carrying the deferred gain embedded in that basis). When the transferor later sells the stock, the deferred gain is recognized.
• The corporation takes the transferor's carryover basis in the property. When the corporation later sells the property, it recognizes the gain that was deferred at the time of the IRC 351 transfer.
• The deferred gain is embedded in both the stock and the property simultaneously. It is not extinguished; it is preserved for future recognition at the corporate or the shareholder level, depending on which asset is disposed of first.

IRC 351 is a deferral provision, not an exclusion. Practitioners who treat an IRC 351 transfer as "tax-free" in the permanent sense are mischaracterizing the outcome. The correct framing: IRC 351 permits recognition to be postponed, with the tax consequence preserved in the bases of both the stock and the underlying property.

When the recipient corporation is an eligible C corporation, the stock issued in the IRC 351 transfer may also be the vehicle for a future gain exclusion. The same C corporation stock that carries the deferred IRC 351 gain can qualify as qualified small business stock, so founders structuring a formation should evaluate the exclusion at the same time. See our IRC 1202 QSBS exclusion guide for the qualification tests and the OBBBA changes.

Section 2: The 80% Control Test (IRC 368(c))

IRC 351 applies only if, immediately after the transfer, the transferors are in "control" of the corporation. Control is defined by reference to IRC 368(c), which requires ownership of at least 80% of the total combined voting power of all classes of voting stock AND at least 80% of the total number of shares of all other classes of stock (non-voting stock). Both prongs must be independently satisfied. Satisfying one and failing the other means the transferors do not have "control" and IRC 351 does not apply to any of the transfers in the transaction.

The "Immediately After" Timing Requirement

The control test is applied immediately after ALL transfers in the transaction are complete, not after each individual transfer. When multiple transferors are part of the same integrated plan, their transfers are grouped together and the 80% test is applied to the group as a whole after all transfers in the plan have occurred, even if the individual transfers take place at different times.

This grouping rule is critical for staggered formation transactions. If three founders plan to contribute property on different dates as part of a single, integrated plan, the control test is not applied after the first transfer or the second. It is applied after the third transfer completes the plan. Practitioners should document the integrated plan in writing before the first transfer occurs to support the grouping argument if the IRS later challenges the timing.

Multiple Transferors: Aggregation for the 80% Test

The 80% control requirement applies to the transferors as a group. No single individual transferor is required to own 80% independently. If four founders each receive 25% of the stock in exchange for property contributed as part of the same integrated plan, the group collectively owns 100% of the stock, which satisfies both prongs of the IRC 368(c) control test even though no individual founder holds 80%.

Service Providers Excluded from the Control Count

A person who transfers only services (and no property) to the corporation does not count as a "transferor" for purposes of the IRC 368(c) control test. The stock that person receives is taxable compensation income, and that person's stock ownership is excluded when calculating whether the group satisfies the 80% threshold.

This exclusion can determine whether the control test is satisfied for the remaining transferors. If a pure service provider receives a large block of stock, that block is subtracted from the denominator for control-test purposes for the property-transferors' calculation only if the service provider is disregarded. The practical effect: if service providers receive too much stock, the property-contributing founders may fall below 80% when only the property-transferors' holdings are counted, causing IRC 351 to fail for the entire group.

Section 3: Property vs. Services -- the Critical Distinction

Only "property" qualifies for IRC 351 deferral. Services rendered to the corporation do not constitute property for this purpose, and stock received for services is not eligible for non-recognition treatment. This rule is stated expressly in Treas. Reg. 1.351-1(a)(1)(i).

What Counts as Property

Property for IRC 351 purposes is broad: cash, real estate, equipment, vehicles, inventory, accounts receivable, patents, trade secrets, proprietary software, customer lists, and most other tangible and intangible assets qualify. The core characteristic of property in this context is that it is an asset with an existing adjusted basis in the hands of the transferor, not a promise of future effort.

What Does NOT Count as Property

Services rendered to the corporation, whether past services already performed or future services promised, do not qualify as property. Promises to perform future services are not property. The key question is whether what the transferor is contributing is an existing asset with an adjusted tax basis or an obligation to work in the future.

Personal goodwill presents a more nuanced question. Where a business is genuinely inseparable from the skills, relationships, and reputation of a specific individual, courts have treated that individual's personal goodwill as distinct from the business's enterprise goodwill. Whether personal goodwill constitutes property transferable to a corporation in an IRC 351 exchange is a fact-specific determination. Do not assume personal goodwill is or is not property without a careful analysis of the applicable case law in the relevant jurisdiction.

Mixed Contributions: Property and Services in the Same Transaction

When a transferor receives stock partly in exchange for property and partly in exchange for services (a common scenario with founding team members who contribute both tangible assets and ongoing sweat equity), the tax consequences are bifurcated. The stock allocable to the property contribution qualifies for IRC 351 deferral. The stock allocable to the services is ordinary income to the recipient at the time of the award, at its fair market value. Both the income recognition and the allocation of stock between property and services components must be documented clearly at the time of formation.

Practical Drafting and IRC 83(b) Considerations

In multi-founder formations, ensure that founders receiving stock for services acknowledge the income tax consequences in writing at the time of the award. Separate the property contribution and the services component into distinct line items in the organizational documents. Where the stock received for services is subject to a vesting schedule or substantial risk of forfeiture, founders should also evaluate the IRC 83(b) election mechanics for restricted property. See the IRC 83(b) election and restricted property practitioner guide for the election procedure, the 30-day filing deadline, and the tax consequences of electing versus not electing.

Section 4: Boot Recognition and Loss Disallowance (IRC 351(b))

IRC 351 provides non-recognition when the transferor receives ONLY stock of the transferee corporation. When the transferor receives anything else in addition to stock (referred to as "boot"), gain recognition is triggered to a limited extent. The presence of boot never produces a fully taxable transaction; it produces partial gain recognition. But it also never produces loss recognition, regardless of the economics.

What Constitutes Boot

Boot is any consideration received from the corporation other than its own stock. Common forms of boot include: cash paid to the transferor at closing, promissory notes issued by the corporation to the transferor, securities of a different corporation (not the transferee), and any other property distributed by the corporation in connection with the transfer. If the corporation pays cash in lieu of fractional shares, that cash payment is also boot.

Gain Recognition: The Lesser-Of Rule (IRC 351(b)(1))

When boot is received, the transferor recognizes gain equal to the lesser of: (a) the fair market value of the boot received, or (b) the total gain realized on the transfer (the excess of the FMV of all consideration received over the adjusted basis of the property transferred). If the total gain realized is zero or negative (i.e., the property was transferred at a loss), no gain is recognized even if boot is received.

Loss Disallowance (IRC 351(b)(2))

Even if the transferor realizes a loss on the transfer (the adjusted basis of the property transferred exceeds the FMV of all consideration received), that loss is NOT recognized. Losses are permanently disallowed in IRC 351 exchanges. The disallowance applies even when boot is received. A transferor who receives both stock and cash from the corporation cannot use the cash receipt to trigger recognition of a realized loss. The loss simply disappears for tax purposes; it does not carry into the corporation's basis in the property (the corporation still takes the transferor's higher carryover basis under IRC 362(a)).

Character of Recognized Gain

Gain recognized because of boot retains its character: capital gain if the property is a capital asset in the transferor's hands, or ordinary income if it is not. However, if the transferred property is IRC 1245 or IRC 1250 property (depreciable property) with accumulated depreciation, the recognized gain is first characterized as ordinary income under the recapture rules, to the extent of prior depreciation taken by the transferor. Only the excess of recognized gain over the recapture amount is treated as capital gain. This ordering rule is important: even a relatively small amount of boot on a highly depreciated asset can trigger full ordinary income on the recognized portion.

Section 5: Liability Assumption (IRC 357)

It is common for a transferor to contribute property that is encumbered by liabilities (a mortgage on real property, a loan secured by equipment, or trade payables assumed along with a business). IRC 357 governs the tax treatment of liability assumption in IRC 351 transactions. The general rule is favorable to transferors, but two exceptions can convert an otherwise clean IRC 351 transfer into a taxable event.

General Rule: Liability Assumption Is Not Boot (IRC 357(a))

Under IRC 357(a), when the corporation assumes the transferor's liabilities as part of an IRC 351 exchange, the assumption is generally not treated as money received by the transferor. No gain is recognized solely because the corporation assumes a liability. The transferor does not treat the liability assumption as boot; the economic reality is that the corporation has taken on an obligation, reducing the net value of what the transferor received in the exchange. IRC 357(a) codifies that this does not trigger recognition.

Exception 1: Tax Avoidance or Lack of Business Purpose (IRC 357(b))

If the principal purpose of including a liability in the IRC 351 transfer was to avoid federal income tax, or the assumption of the liability did not have a clear bona fide business purpose, ALL of the assumed liabilities (not just the "tainted" ones) are treated as money received by the transferor. Gain is recognized to the extent of the total amount of assumed liabilities. This is an all-or-nothing rule: if the tax avoidance purpose taint applies, every dollar of assumed liabilities in the transaction becomes boot, not just the portion associated with the tainted liability.

The most common fact pattern triggering IRC 357(b) scrutiny involves a transferor who, shortly before an IRC 351 transfer, encumbers property with a new liability and then transfers the newly encumbered property to the corporation, causing the corporation to assume the liability. If the liability proceeds were taken out by the transferor for personal use and then the encumbered property is transferred, the IRS may assert that the transfer of the liability had no business purpose other than to extract value from the corporation tax-free.

Exception 2: Excess Liabilities Over Basis (IRC 357(c))

Under IRC 357(c)(1), if the total amount of all liabilities assumed by the corporation from the transferors in the transaction exceeds the total adjusted basis of all property transferred by those transferors in the same transaction, the excess is treated as gain recognized by the transferor. This is a mathematical test applied on an aggregate basis across the entire transaction, not asset by asset.

The IRC 357(c) trap is particularly common for highly leveraged businesses being incorporated. A sole proprietor who has depreciated equipment heavily and carries significant business debt may find that the liabilities transferred to the new corporation exceed the aggregate adjusted basis of all the property being contributed. The excess produces gain recognition even though no cash changes hands and the business owner receives only stock. This is an out-of-pocket tax event on a non-cash transaction.

Basis Impact of Assumed Liabilities

Liabilities assumed by the corporation reduce the transferor's basis in the stock received, as discussed in Section 6 below. If IRC 357(c) gain is triggered, that gain is added back to the transferor's stock basis. The net effect is that the IRC 357(c) gain partially restores a basis that would otherwise be driven to zero or below by the liability assumption.

Section 6: Basis Mechanics (IRC 358(a) and IRC 362(a))

The basis rules in IRC 351 transactions link the transferor's stock basis and the corporation's property basis into a single system that preserves the deferred gain for future recognition. Understanding both computations is essential for modeling the long-term tax cost of an IRC 351 transfer.

Transferor's Basis in Stock Received (IRC 358(a))

Under IRC 358(a), the transferor's basis in the stock received is computed as follows:

• Start with: the adjusted basis of the property transferred to the corporation.
• Subtract: the fair market value of any boot received (cash, notes, or other property).
• Subtract: the amount of any liabilities assumed by the corporation (IRC 358(d)).
• Add: any gain recognized by the transferor on the exchange (whether from boot under IRC 351(b) or from excess liabilities under IRC 357(c)).

Conceptually, the transferor's stock basis tracks the adjusted basis of what went into the corporation, adjusted for the net economic outflows (boot received and liabilities assumed) and the income already recognized and taxed. The result is that the stock carries forward the deferred gain; when the transferor later sells the stock at fair market value, the low basis produces the gain that was deferred at the time of the IRC 351 transfer.

Corporation's Basis in Property Received (IRC 362(a))

Under IRC 362(a), the corporation's basis in the property received from the transferor equals the transferor's adjusted basis in that property at the time of the transfer, increased by any gain recognized by the transferor on the exchange. The corporation steps into the transferor's shoes: whatever adjusted basis the transferor had before the transfer becomes the corporation's starting basis in the property.

If the transferred property was appreciated (FMV exceeds adjusted basis) and no gain was recognized, the corporation holds the property at a below-market basis. The difference between FMV and the corporation's carryover basis is the embedded, deferred gain. When the corporation sells or disposes of the property in a taxable transaction, that gain is recognized at the corporate level.

Carryover of Depreciation Method and Recovery Period

The corporation generally continues to depreciate the transferred property over the remaining useful life or recovery period from the transferor's perspective, using the same depreciation method. The corporation does not get a fresh start at a higher fair market value for depreciation purposes; it inherits the transferor's depreciation schedule. The specifics of how the depreciation carryover operates depend on the type of property, the applicable cost recovery system (MACRS under IRC 168), and any applicable Treasury regulations. Hedge the precise depreciation continuation rules to IRC 168 and the Treasury regulations applicable to the asset class in question.

Section 7: Depreciation Recapture on IRC 351 Transfers

A common misconception is that depreciation recapture potential is extinguished in an IRC 351 transfer. It is not. The recapture potential carries over to the corporation, embedded in the corporation's low carryover basis. The IRC 351 transfer does not reset the recapture clock or eliminate the ordinary income character of the accumulated depreciation; it transfers that character to the corporation.

Recapture Carryover into the Corporation

If the transferred property is IRC 1245 property (personal property subject to the MACRS depreciation rules, such as equipment, vehicles, and machinery) or IRC 1250 property (real property, such as commercial buildings, with accumulated depreciation), the corporation inherits the recapture potential. On any future sale or disposition of the property by the corporation, the corporation must recognize IRC 1245 or IRC 1250 ordinary income to the extent of the accumulated depreciation, including the depreciation taken by the original transferor before the IRC 351 transfer.

The transferor's pre-transfer depreciation does not become corporate depreciation from the tax year of the transfer; but the recapture potential from that depreciation follows the asset into the corporation and is recognized when the corporation disposes of the asset. The corporation is taxed on the full accumulated depreciation, not just the portion it claimed after the IRC 351 transfer.

Boot Receipt Accelerates Recapture Character

If boot is received in an IRC 351 transfer and the transferor must recognize gain under IRC 351(b), the character of the recognized gain is determined by first applying the IRC 1245/1250 recapture rules. The recognized gain is ordinary income to the extent of prior depreciation claimed by the transferor on the transferred asset. Only the excess of recognized gain over the recapture amount is treated as capital gain. This ordering rule applies even if the total realized gain on the asset is primarily attributable to appreciation rather than depreciation, as long as the recognized gain (which is limited to the lesser-of amount under IRC 351(b)) falls within the accumulated depreciation.

For the full mechanics of IRC 1245 and IRC 1250 recapture, including the Form 4797 reporting workflow and the interaction with installment sales and like-kind exchanges, see the IRC 1245 and 1250 depreciation recapture and Form 4797 practitioner guide.

Section 8: IRC 1374 Built-In Gains Tax If an S Election Follows

An IRC 351 transfer into a C corporation followed by an S corporation election creates a compounding deferral structure with a specific tax cost: the IRC 1374 built-in gains (BIG) tax. The BIG tax is designed to prevent C corporations from converting to S status to avoid the corporate-level tax on gains that were already economically present when the S election was made.

The Mechanics of IRC 1374

Under IRC 1374, if an S corporation has a net unrealized built-in gain (NUBIG) at the time it makes (or is treated as making) an S election, any built-in gain that is recognized by the corporation during the recognition period is subject to the BIG tax at the corporate level. The recognition period is generally the 5-year period beginning on the first day of the corporation's first taxable year as an S corporation (IRC 1374(d)(7)). Confirm the current BIG tax rate at IRS.gov; do not rely on a rate stated in any secondary source, as the applicable rate is subject to change.

The NUBIG is the amount by which the FMV of the corporation's assets on the first day of the S election exceeds the aggregate adjusted basis of those assets on that date. For a corporation that received property in an IRC 351 transfer, the NUBIG includes:

• Unrealized appreciation on all property received in the IRC 351 transfer (the excess of FMV over the carryover basis at the time of the S election).
• Accumulated depreciation recapture potential embedded in the carryover basis of depreciable property received in the IRC 351 transfer.
• Any other built-in income items, including accounts receivable with zero or low basis, deferred revenue with tax basis below FMV, and similar items.

Combined Deferral and BIG Tax Exposure

When an IRC 351 transfer is followed quickly by an S election, the embedded gain from the IRC 351 transfer becomes fully exposed to the BIG tax if recognized within the recognition period. The practical effect: the double-deferral structure (IRC 351 defers gain at transfer; the S election converts the corporation to pass-through status) does not eliminate the corporate-level tax on gain that was present at the time of the S election. The BIG tax is the mechanism by which the deferred corporate tax survives the entity-type conversion.

Practitioners should model this interaction carefully before recommending a combined IRC 351/S-election structure. If the plan is to hold the appreciated assets for more than 5 years after the S election before selling, the BIG tax exposure may be managed by timing. If the plan is to sell sooner, the BIG tax applies at the corporate level on the recognized built-in gain, reducing the economic benefit of the S corporation structure.

For the full BIG tax mechanics, the NUBIG computation, the recognition period rules, and built-in loss limitations, see the IRC 1374 built-in gains tax and S corporation conversion practitioner guide.

Reporting and Installment Obligations

There is no form called "Form 351." IRC 351 elections and required disclosures may be required through Form 8594 (Asset Acquisition Statement) or via a statement attached to the tax return, depending on the specific facts and the nature of the transaction. The specific filing requirements are subject to current IRS.gov instructions and the applicable Treasury regulations; always verify against current guidance rather than relying on historical practice.

If the corporation issues an installment obligation to a transferor instead of (or in addition to) stock, the tax treatment of that obligation in an IRC 351 context involves complex rules under IRC 453(f) and related provisions. Hedge the installment obligation analysis in IRC 351 transactions to IRC 453(f) and current IRS guidance; the interaction of installment sale reporting and IRC 351 non-recognition is not straightforward, and the rules are not uniform across all fact patterns.

Frequently Asked Questions

Common questions from enrolled agents, CPAs, and tax attorneys working on IRC 351 transfers, corporate formations, and restructurings.

Related Practitioner Guides

The following guides cover provisions that intersect with IRC 351 transfers in corporate formation, S corporation planning, and depreciation analysis.

• IRC 1245 and 1250 Depreciation Recapture and Form 4797 Practitioner Guide -- covers recapture mechanics for personal and real property, the ordering rules for ordinary income vs. capital gain, Form 4797 Parts I, II, and III, and interaction with installment sales and IRC 351 transfers.
• IRC 6038B Form 926 U.S. transferor reporting -- when an IRC 351 contribution transfers property to a foreign corporation, Form 926 reporting is triggered under IRC 6038B; covers the 10% FMV penalty, the $100,000 non-willful cap, GRA coordination, and the IRC 6501(c)(8) SOL extension.
• IRC 1374 Built-In Gains Tax: S Corporation Conversion Practitioner Guide -- covers the BIG tax computation, NUBIG and NUBIL calculations, the 5-year recognition period, asset disposition planning during the recognition period, and the interaction with IRC 351 transfers into corporations that elect S status.
• IRC 83(b) Election and Restricted Property Practitioner Guide -- covers the mechanics of the IRC 83(b) election for founders who receive stock for services subject to a substantial risk of forfeiture, the 30-day filing deadline, Form 15620, and the income and basis consequences of electing versus not electing.
• Section 1244 Small Business Stock Ordinary Loss Guide -- IRC 351 is the mechanism by which Section 1244 stock is originally issued, and the Section 1244 qualification requirements apply at the time of the IRC 351 contribution, so formation planning should confirm Section 1244 eligibility at the outset.
• IRC 332/336/337 Corporate Complete Liquidation and Gain Recognition Guide -- IRC 351 tax-free incorporation and IRC 332 tax-free complete liquidation are the nonrecognition bookends of the corporate life cycle: IRC 351 governs tax-free entry into corporate form while IRC 332 governs tax-free exit when a parent liquidates a wholly owned subsidiary; practitioners advising on corporate restructuring must understand both entry (IRC 351 basis carryover) and exit (IRC 334(b)(1) basis carryover) to model the full tax cost of the corporate structure.
• IRC 368 Reorganization Types A, B, C, D, G Practitioner Guide -- IRC 351 tax-free incorporation and IRC 368 tax-free reorganizations are the two principal nonrecognition frameworks for corporate formation and restructuring; IRC 351 governs the initial contribution of assets to a corporation for stock while IRC 368 governs subsequent corporate mergers, acquisitions, and divisive transactions; practitioners advising on M&A transactions must determine whether the deal qualifies as a tax-free reorganization under IRC 368 or a taxable acquisition, and then evaluate any IRC 351 implications for shares issued to the target's shareholders.
• IRC 304: Redemptions Through Related Corporations Practitioner Guide -- IRC 304 recharacterizes what appears to be an IRC 351 contribution of Target Corp stock to Acquiring Corp followed by the Acquiring Corp's redemption of its own shares; when a shareholder transfers stock of a subsidiary (Target) to a related corporation (Acquiring) for cash, IRC 304(a)(1) treats the transaction as if the shareholder contributed the Target stock to Acquiring (IRC 351 step) and then Acquiring redeemed its own stock (IRC 302/301 step); practitioners advising on multi-entity contributions and reorganizations must test IRC 304 before concluding that an IRC 351 nonrecognition applies to a related-corporation stock transfer.
• IRC 311: Corporation Gain Recognition on Distributions of Appreciated Property -- when a corporation distributes appreciated property to shareholders in a non-liquidating distribution, IRC 311(b) imposes gain recognition at the corporate level; this directly affects the IRC 351 analysis because appreciated property contributed to a corporation in a tax-free IRC 351 exchange carries a low carryover basis inside the corporation (IRC 362), and any subsequent in-kind distribution of that same property triggers IRC 311(b) corporate-level gain on the full FMV-to-basis spread, ending the nonrecognition benefit of the original IRC 351 exchange for the distributed asset.
• IRC 1202: QSBS Gain Exclusion and Active Business Test Guide -- IRC 351 and IRC 1202 interact at the moment a taxpayer contributes appreciated property or cash to a newly formed C corporation: the IRC 1202 five-year holding period begins on the date the shares are issued in the IRC 351 exchange, and the IRC 1202 original issuance requirement is satisfied by a qualifying IRC 351 contribution because the shares are received directly from the issuing corporation rather than purchased from a prior stockholder; however, the basis of the QSBS in a rolled-over IRC 351 exchange is determined by reference to the contributor's transferred basis, which affects the 10x basis cap computation under IRC 1202(b)(1)(B); practitioners structuring new C corporations should analyze the IRC 351 and IRC 1202 interplay at formation to maximize the QSBS exclusion potential (verify at IRS.gov and consult independent counsel).
• IRC 453B: Gain Recognition on Disposition of Installment Obligations -- if a corporation distributes an installment note it holds to shareholders as a property dividend under IRC 311 (rather than as part of a liquidating distribution), IRC 453B applies at the corporate level; the corporation recognizes gain equal to the FMV of the note minus its adjusted basis (the deferred gain embedded in the note); this IRC 453B recognition event is separate from and in addition to the IRC 311(b) gain that the corporation must recognize on the distribution of appreciated property; practitioners advising on the tax cost of distributing installment obligations out of a corporation must layer the IRC 453B analysis on top of the IRC 311 gain computation before recommending an in-kind distribution of a note (verify at IRS.gov and consult independent counsel).

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