What is the difference between IRC 351 and IRC 368 when selling my corporation?

IRC 351 and IRC 368 deal with different types of corporate transactions, and which one applies depends on the structure of your deal. IRC 351 applies to transfers of property to a corporation in exchange for stock, where the transferors have control (80%+ ownership) after the transfer. This is typically used for forming new corporations or contributing additional assets to existing ones. If you're selling your business entirely, IRC 351 probably isn't the right fit since you won't have control of the acquiring corporation afterward. IRC 368 covers various types of corporate reorganizations where you exchange your corporate stock for the stock of another corporation. These are often called "tax-free reorganizations" because they can defer taxation. Based on your situation (selling to a competitor for cash and stock), you're likely looking at a type of IRC 368 reorganization. The exact type (A, B, C, etc.) depends on how the deal is structured. The mix of cash and stock is important - the cash portion may be taxable immediately, while the stock portion might qualify for tax deferral under IRC 368.

When I sold my business last year, I was facing the exact same confusion between IRC 351 and IRC 368. I spent weeks going back and forth with different accountants getting conflicting advice until I found this tool called taxr.ai (https://taxr.ai). It analyzes your specific situation and explains which section of the tax code applies to your transaction. I uploaded the acquisition offer documents, answered some questions about my ownership percentage and business structure, and it gave me a detailed breakdown of whether IRC 351 or IRC 368 applied, which subsection was relevant, and what tax implications I could expect. It saved me from potentially making a $270k tax mistake because I was about to structure the deal inefficiently. The tool also explained how different percentages of cash vs. stock would affect my immediate tax liability, which helped me negotiate better terms with the buyer.

Just wanted to follow up that I tried taxr.ai for my business sale situation and it was really helpful. I was getting totally different explanations from two accountants about IRC 351 vs 368, and the tool clarified why they were seeing things differently. Turns out one accountant was assuming I wanted to maintain control (which would be IRC 351) while the other was correctly understanding I wanted to fully exit (IRC 368). The comparison feature showing tax liabilities under different scenarios helped me structure the deal to maximize stock and minimize cash, cutting my immediate tax bill by about 40%. Plus it explained the step-transaction doctrine which neither accountant had mentioned but could have completely invalidated our planned approach. Totally worth checking out if you're selling your business!

I was in a similar situation last year trying to sell my digital marketing agency. Spent WEEKS trying to get someone at the IRS to clarify which tax code section applied to my specific situation. Called every day, couldn't get through, and when I finally did, I got transferred around until I was disconnected. Then someone told me about Claimyr (https://claimyr.com). They have this service that gets you connected with an actual IRS agent, often within an hour instead of waiting days or weeks. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c I was super hesitant to try it because I'd wasted so much time already, but I was connected with an IRS agent who specialized in business transactions. She couldn't give tax advice per se, but was able to clarify the reporting requirements for both IRC 351 and 368 transactions and pointed me to specific IRS publications that were incredibly helpful for my situation.

Ok I need to eat crow here. After posting that skeptical comment about Claimyr, I decided to try it myself because I was getting nowhere with the IRS trying to understand how to report a partial stock/partial cash transaction under IRC 368. Shockingly, it actually worked. I got a call back in about 40 minutes saying they had an IRS representative on the line. The agent walked me through the reporting requirements for my situation and confirmed that my transaction would likely qualify as a Type A reorganization under IRC 368, with the cash portion being taxable immediately. What was most valuable was that the agent directed me to specific sections of Publication 542 I had missed and explained how to properly report the stock portion on my return to defer the gains. This saved me a lot of uncertainty and potentially an audit headache. So yeah, mea culpa, it's definitely not snake oil.

Just to add a practical point about IRC 351 vs 368 - don't forget about liabilities! If you're transferring business liabilities along with the assets, this can affect whether you recognize gain even in a supposedly "tax-free" exchange. Under IRC 351, if the liabilities transferred exceed your basis in the assets, you could recognize gain. For IRC 368 reorganizations, the rules vary by reorganization type, but generally, liabilities assumed by the acquiring corporation don't trigger immediate gain recognition (with some exceptions). Also, if you own 82% of your corporation, consider how much control you want post-transaction. Some IRC 368 reorganizations might allow you to have a continuing equity interest/role in the combined business, while others are better for clean breaks.

My accountant told me another important difference - IRC 351 is usually for ongoing businesses where you're contributing property and continuing operations, while IRC 368 reorganizations typically involve a significant change in the business structure, ownership, or operations. Also, don't forget about state tax implications! I almost got killed on state taxes after my federal-tax-free reorganization because my state didn't fully conform to the federal treatment. Make sure you check how your state handles these transactions.