Section 351 Statement: Who Files, Contents, and Attachment

A Section 351 statement is a written disclosure you attach to your federal income tax return when you transfer property to a corporation in exchange for stock and claim tax-deferred treatment. Its contents are set by Treasury Regulation 1.351-3, which requires you to identify the parties, list the transfer dates, and report the fair market value and adjusted basis of the property in specific categories.¹ The statement is not an IRS form. You draft it, title it with prescribed language, and file it with the return for the tax year the exchange occurred.

Who Has to File

The filing obligation runs to two parties: a “significant transferor” and the transferee corporation.

You are a significant transferor if you transferred property, received stock, and immediately after the exchange owned at least 5% by vote or value of the corporation’s outstanding stock when that stock is publicly traded, or at least 1% when it is not.¹ Below those thresholds, you have nothing to file, though you should still keep your own records of the exchange for basis purposes.

The corporation files its own statement unless every required piece of information already appears in a significant transferor’s statement. In practice the corporation files, because it reports the transaction from the receiving side.

Attach the statement to the income tax return for the year of the exchange. That means Form 1040 for an individual, Form 1120 for a corporation, and Form 1065 for a partnership. The deadline is your return’s due date, including extensions.¹

What the Transferor’s Statement Must Contain

Title the document exactly as the regulation prescribes: “STATEMENT PURSUANT TO § 1.351-3(a) BY [NAME AND TIN], A SIGNIFICANT TRANSFEROR.” Below the title, cover four items.¹

Corporation’s Name and EIN

Identify the transferee corporation by name and employer identification number. The regulation qualifies the EIN requirement with “if any,” acknowledging that a newly formed corporation may not yet have one.

Date or Dates of Transfer

List the date the assets moved to the corporation. If the transaction closed in tranches, list each date separately. This is the date of the Section 351 exchange, not the date you originally acquired the property.

Fair Market Value and Basis, Reported by Category

This is the substantive core of the statement. Report the aggregate fair market value and the aggregate adjusted basis of the transferred property, measured immediately before the exchange. The regulation splits the totals into four buckets:¹

Importation property in a loss importation transaction, as defined under Section 362(e)(1).
Loss duplication property, as defined under Section 362(e)(2).
Property on which gain or loss was recognized on the transfer, whether or not it also falls into one of the two categories above.
All other property.

The category breakdown exists so the IRS can verify the anti-loss-importation and anti-loss-duplication basis rules. On a routine domestic incorporation of appreciated property, most or all of what you contributed will sit in the “all other property” bucket.

Private Letter Ruling Details

If you obtained a private letter ruling in connection with the exchange, include its date and control number.¹ Most incorporations do not involve a ruling, so this line is often blank or omitted as inapplicable.

What the Corporation’s Statement Must Contain

The corporation titles its version “STATEMENT PURSUANT TO § 1.351-3(b).” The content mirrors the transferor’s version with the identifying information flipped: instead of naming the corporation, the corporation names every significant transferor and lists each one’s taxpayer identification number.¹

The corporation reports fair market value and basis of the property it received using the same four categories, the transfer dates, and any private letter ruling information. Because the corporation’s basis in contributed property generally carries over from the transferor, this filing establishes the baseline for depreciation, future gain, and any later sale.

Liabilities and Boot in the Exchange

Two items are not enumerated in the regulation’s list but still belong in a well-prepared statement because they drive the basis math and the qualification analysis.

Assumed liabilities. When the corporation takes on your debt, Section 357(a) generally keeps the exchange within Section 351. Two exceptions convert assumed liabilities into current tax. If the principal purpose of the assumption was to avoid federal income tax, or there was no genuine business reason for it, the entire assumed amount is treated as cash received, and you bear the burden of proving otherwise by a clear preponderance of the evidence. If total liabilities assumed exceed your total adjusted basis in the property transferred, the excess is treated as gain.² Disclose the amount of liabilities the corporation assumed and any liabilities to which the transferred property was subject.

Boot. If you received anything other than stock, such as cash or short-term debt instruments, Section 351 still applies but you recognize gain equal to the lesser of realized gain or boot received. No loss is recognized.³ Identify the fair market value of any boot separately so the IRS can verify the recognized gain calculation and confirm the stock basis adjustments under Section 358.⁴

How to Attach the Statement

For a paper return, physically attach the statement to the income tax return for the year of the exchange.

For an electronically filed return, submit the statement as a PDF attachment through the Modernized e-File (MeF) system. PDF file names are capped at 64 characters and description fields at 128 characters. You may combine multiple Section 351 statements into a single PDF or submit each as its own file.⁵ Where a business rule specifies a required description, the description field must match exactly or the return will reject. Check your tax software’s naming instructions before transmitting.

If You Filed Without the Statement

Two paths exist to fix a missing statement, and which one applies depends on how much time has passed.

Automatic relief under Treasury Regulation 301.9100-2 gives you a six-month extension from the original due date of the return, not counting extensions, for regulatory elections and statements due with a timely filed return. To use it, file an amended return with the statement attached and write “FILED PURSUANT TO § 301.9100-2” across the top. No ruling request and no user fee.⁶

Non-automatic relief under Treasury Regulation 301.9100-3 is available after the automatic window closes, but the process is heavier. You request a private letter ruling, pay the user fee, and show two things: that you acted reasonably and in good faith, and that granting relief will not prejudice the government’s interests. Reliance on a qualified tax professional who failed to flag the requirement is one recognized ground; genuine unawareness after reasonable diligence is another. The IRS gauges prejudice by whether relief would produce a lower tax than timely compliance would have, including the time value of money. A ruling request does not pause the statute of limitations, and the IRS may condition relief on your agreement to extend the assessment period and waive objections to reexamination of the affected years.

What Happens If You Never File It

Missing the statement does not by itself disqualify the exchange from non-recognition treatment. The IRS has taken that position in technical advice, and courts have refused to let taxpayers use their own procedural noncompliance to escape Section 351 treatment.

That is not a reason to skip filing. Without the statement, your documentation trail for stock basis and the corporation’s property basis is thin, and defending the qualification of the transaction under examination becomes considerably harder. Willful failure to provide information required by the regulations can also expose you to penalties under the Internal Revenue Code. If you realize the statement was omitted, use the 9100-2 or 9100-3 procedure promptly rather than leaving the gap.

1
eCFR. 26 CFR 1.351-3 – Records to Be Kept and Information to Be Filed
2
Office of the Law Revision Counsel. 26 USC 357 – Assumption of Liability
3
Office of the Law Revision Counsel. 26 USC 351 – Transfer to Corporation Controlled by Transferor
4
Office of the Law Revision Counsel. 26 USC 358 – Basis to Distributees
5
Internal Revenue Service. Recommended Names and Descriptions for PDF Files Attached to Modernized e-File (MeF) Business Submissions
6
U.S. Government Publishing Office. 26 CFR 301.9100-2 – Automatic Extensions