COORDINATED ISSUE PAPER
ISSUE: IRC § 351 Contingent Liability
Capital Loss Transactions
COORDINATOR: Judith A. Witteman
TELEPHONE: (504) 558-3110
UIL NO: 9300.17-00
FACTUAL/LEGAL ISSUE: Legal and Factual
/s/ Thomas C. Lillie_______________ July 14, 2004___
for DIRECTOR TECHNICAL GUIDANCE DATE
/s/ L.P. Mahler___________________ July 14, 2004___
DIRECTOR, TECHNICAL SERVICES DATE
EFFECTIVE DATE: July 14, 2004
Any line marked with a # is for Official Use Only
IRC § 351 CONTINGENT LIABILITY
CAPITAL LOSS TRANSACTIONS
Whether transactions described in Notice 2001-17, 2001-1 C.B. 730, and
substantially similar transactions (herein “Contingent Liability Transactions”) satisfy the
technical requirements of I. R. C. § 351.1
In cases where a Contingent Liability Transaction took place after October 19,
1999, whether I. R. C. § 358(h) applies.
Whether the contingent liability is a liability that gives rise to a deduction within
the meaning of I. R. C. § 357(c)(3) and whether the taxpayer’s basis in its stock is
determined by reference to I. R. C. § 358(d)(1) or I. R. C. § 358(d)(2).
Whether the liability assumption should be treated as money received under
I. R. C. § 357(b).
Whether the liability assumption should be treated as a promise to pay, rather
than as a legal obligation, such that the promise constitutes “other property” within the
meaning of I. R. C. § 358(a).
Whether preferred stock issued in connection with the I. R. C. § 351 transaction
is non-qualified preferred stock within the meaning of § 351(g), or the stock sale may
be otherwise disregarded for tax purposes.