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Generally, transfers to a partnership or corporation in exchange for equity do not trigger gain recognition. However, there is one area to be aware of - the investment company rules - that can affect this nonrecognition rule. This typically pops up where most of a partnership's or corporation's assets consist of marketable securities held for investment.
However, the asset mix is not enough to fail this test. Diversification has to be achieved. In this video, I walk through the background behind these rules (looking at the economic effects and disincentives of the default nonrecognition rule), and then spend some time on 4 safe harbors for the determination of diversification for purposes of determining whether there is an investment partnership under IRC Section 721(b), or an investment company under IRC Section 351.
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