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LLC Conversions: Utilizing IRC Section 351 for Tax-Free Exchanges

A live 110-minute CPE webinar with interactive Q&A

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Monday, August 18, 2025

1:00pm-2:50pm EDT, 10:00am-11:50am PDT

Early Registration Discount Deadline, Friday, July 25, 2025

or call 1-800-926-7926
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This webinar will explain how LLCs can convert to C corporations using tax-free methods under IRC Section 351 and Rev. Rul. 84-111.

Our panel of experienced tax professionals will walk through the three recognized conversion methods, the requirements for tax-free treatment, and the tax pitfalls that can trigger unintended gain. The session will include real-world examples, discussion of equity treatment (including profits interests and options), and key considerations for QSBS eligibility post-conversion.

Description

IRC Section 351 allows for the tax-free transfer of property to a corporation in exchange for stock, provided certain requirements—most notably, control—are satisfied. Revenue Ruling 84-111 outlines the three permissible methods for converting an LLC into a corporation: Assets Over, Assets Up, and Interests Over. Each method has distinct legal mechanics but aims to achieve the same result: a tax-free incorporation.

Converting an LLC to a C corp is often necessary for fundraising or achieving QSBS eligibility. However, significant tax traps exist, including failures of the control test, debt in excess of basis under Section 357(c), issuance of nonqualified preferred stock (NQPS), and missteps with Section 83(b) elections. Service providers with unvested equity and holders of convertible debt, SAFEs, or warrants face additional tax complexity.

Understanding the technical and practical issues involved in LLC-to-C corp conversions is crucial for business owners, tax professionals, and advisors looking to avoid unintended tax consequences and maximize long-term tax benefits like QSBS.

Listen as our panel of federal income tax professionals explains the key considerations, requirements, and examples of how to navigate LLC conversions under Section 351.

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Outline

  1. Introduction to LLC Conversions
    1. Why convert?
    2. Legal and tax objectives
  2. Rev. Rul. 84-111: Permitted Methods of Conversion
    1. Assets Over
    2. Assets Up
    3. Interests Over
  3. Requirements for Tax-Free Treatment Under Section 351
    1. Property transferred
    2. Stock received
    3. Control under Section 368(c)
    4. Business purpose
  4. Common Traps and Taxable Transactions
    1. Failing the 80% control test
    2. Section 357(c): debt in excess of basis
    3. Issuance of nonqualified preferred stock
    4. Negative capital accounts
    5. Missed Section 83(b) elections
    6. Treatment of unvested interests and service equity
  5. Special Equity and Investment Considerations
    1. Profits interests and liquidation preferences
    2. Treatment of options and conversion math
    3. SAFEs, investment warrants, and convertible debt
  6. QSBS and Section 1244 Implications
    1. Requirements for QSBS eligibility
    2. Holding period and $50M test
    3. Stock received in conversions
    4. Section 1244 stock limitations
  7. Examples and Scenarios
    1. State-filed conversion
    2. SAFE exchange implications
    3. Treatment of profits interests in conversion

Benefits

The panel will cover these and other critical issues:

  • Understanding the “Assets Over,” “Assets Up,” and “Interests Over” conversion methods
  • Meeting the control and property tests under Section 351
  • Avoiding hidden tax traps like Section 357(c), NQPS, and missed 83(b) elections
  • Planning for QSBS eligibility and preserving tax-free treatment
  • Converting service provider equity and structuring replacement options

Faculty

Baker, Mike
Mike Baker, J.D., LLM
Managing Partner
Baker Tax Law

Mr. Baker advises clients with respect to domestic tax matters and employee benefits and compensation. His clients...  |  Read More

Marschall, Jessica
Jessica I. Marschall, CPA, ISM AM, AAA Asociate Member
President & CEO
Marschall Accounting Services

Ms. Marschall has over 24 years of accounting, audit, and tax experience, including experience at a large public...  |  Read More

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Early Discount (through 07/25/25)

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Early Discount (through 07/25/25)

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