Under what circumstances do Section 351 exchanges occur?

Section 351 exchanges serve as a pivotal element in corporate tax law, specifically designed to allow for the transfer of property to a corporation without triggering immediate tax liabilities for the transferring shareholders. Under Section 351 of the Internal Revenue Code, shareholders can transfer property (including cash, stock, or other assets) to a corporation in exchange for its stock, and if certain conditions are met—primarily that the shareholders maintain control of the corporation immediately after the exchange—this transfer can occur without immediate taxation.

This provision encourages the formation of corporations by allowing individuals to defer recognition of gain or loss on the transferred property until they eventually sell their shares or the corporation liquidates. Therefore, B accurately reflects the essence of a Section 351 exchange: it is specifically designed to facilitate the transfer of property without immediate tax consequences, thereby providing a tax-deferred pathway for corporations to raise capital and structure their transactions more flexibly.

The other choices, while they address different aspects of corporate transactions, do not align with the core purpose of Section 351. Immediate tax liabilities typically arise in various situations where taxable events occur, particularly in cash transactions or asset sales. Similarly, the liquidation of subsidiaries can entail different tax consequences that do not fall under the provisions of Section 351,