This chart applies Treas. Reg. § 1.356-1(d), Example 2. A (who may be an individual or a corporation) participates in an exchange to which section 356 applies and to which section 354 would apply but for the receipt of property not permitted to be received without the recognition of gain or loss. A surrenders a single share of stock with an adjusted basis of $200.
In return, A receives total consideration of $175, made up of one share of stock (FMV $100), cash of $25, and property with an FMV of $50. The cash and property are “boot” — consideration other than permitted stock.
Subtracting A’s $200 adjusted stock basis from the $175 of total consideration produces a realized loss of $25. Under section 356(c), however, no loss is recognized on an exchange described in section 356, even where boot is received. A’s recognized loss is therefore $0.
Total consideration of $175 minus A’s $200 adjusted stock basis yields a $25 realized loss on the surrendered share.
Section 356(c) prohibits recognizing a loss in a section 356 exchange, so A’s recognized loss is $0 despite receiving boot.
The cash of $25 and property with a $50 FMV are boot, but receiving boot only permits gain recognition — never loss recognition.
The regulation treats A the same whether A is an individual or a corporation; the loss-disallowance rule of section 356(c) applies in both cases.
