How is the transfer of liabilities in a property transaction generally treated f

Question

How is the transfer of liabilities in a property transaction generally treated for tax purposes? How is a transfer of liabilities generally treated in a § 351 transaction? What exceptions could arise to this usual treatment in a § 351 setting? Your assignment should be a paper 2-3 pages long, not including the required title and reference pages. Adhere to the CSU-Global Guide to Writing and APA. Include at least three scholarly sources (you may use the recommended readings) to support your answers. The CSU-Global Library is a good place to find these sources. Remember to use in-text citations as appropriate and to include your sources in your reference page.

Explanation / Answer

Ans : The transfer of liabilty in a property transaction generally treated for the tax purposes as, when another party assumes a liabilty in a property transaction, the party no longer is responsible for the debt is treated as having received cash . This is consistent with the rule dealing with like-kind exchange under 1031.

However, when the acquiring corporations assumes the liability in a 351 transaction is treated under, 357(a) provides that the transfer does not result in boot to the transferor-shareholder for the gain recohnition purposes.To do so and the trigger gain to the property transferor if the corporation assumed a mortgage on the transfer encumbered property, which could discourage the use of the corporate form of business.

The general rule of 357(a) has two exceptions, (1) 357(b) provides that if the principle purposes of the assumption of the liabilities is to avoid tax or if there is no bona fide business purpose behind the exchange, the liabilities are treated as boot , and (2) 357(c) provides that if the sum of the property exceeds the adjusted basis of the properties transferred, the excess is the taxable gain.

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