GoldCo, a U.S. corporation, incorporates its foreign branch in a § 351 exchange, creating GreenCo, a wholly owned foreign corporation. GoldCo transfers $200 in inventory (basis = $50) and $900 in land (basis = $950) to GreenCo GreenCo uses these assets in carrying on a trade or business outside the U.S. What gain or loss, if any, does GoldCo recognize as a result of this transaction?

a. ($50)
b. $0
c. $100
d. $150

d
RATIONALE: Transfers of property to a foreign corporation in an exchange described in § 351 will become taxable under § 367(a)(1) unless another exception applies. The active trade or business exception of § 367(a)(3) allows continued tax deferred treatment under § 351 as long as the property transferred is used in an active trade or business carried on outside the United States. However, the trade or business exception does not apply to certain assets, including inventory, accounts receivable, foreign currency, certain intangible property, and certain leased property [§ 367(3)(b)]. Consequently, although this exchange qualifies for tax free treatment under the trade or business exception, the $150 gain from the inventory is recognized. Gains are considered on an asset-by-asset basis with no offset for losses on other assets.