One month after Sally incorporates her sole proprietorship, she gives 25% of the stock to her children. Section 351 cannot apply to Sally because she has not satisfied the 80% control requirement.

Question

Quizplus · Accepted Answer

Section 351 can apply to Sally because the requirement is that the transferors as a group must be in control of the corporation immediately after the exchange, and control is defined as owning at least 80% of the corporation. Since Sally initially owns 100% before giving away 25%, she still retains 75%, and with her children's 25%, the total control by the transferors is 100%, satisfying the 80% control requirement.

One Month After Sally Incorporates Her Sole Proprietorship, She Gives