Section 351 - Provides that gain or loss is not recognized upon the transfer by one or more persons of property to a corporation solely in exchange for stock in that corporation if, immediately after the exchange, such person or persons are in control of the corporation to which the property was transferred. All corporations need assets to operate - i.e. cash, equipment, inventory, people. All corporations acquire assets. Owners put in cash, property, or both.
Owners generally provide services to the corporation.
Uncle Joe pays tax. Section 351 - non recognition of gain rules Substitute basis rules apply. Loss is never recognized by transferor. The non recognition of gain or loss is accompanied by a carryover of basis. Section 358 provides that basis of stock received in a Section 351 transfer is the same as the basis taxpayers had in the property transferred, increased by any gain recognized on the exchange and decreased by boot received.