What does section 351 protect Leah from recognizing after transferring equipment to Crow Corporation?

Section 351 of the Internal Revenue Code allows a taxpayer to transfer property to a corporation without recognizing gain or loss, provided that they receive stock in return and meet certain control requirements. In Leah's case, she transfers equipment to Crow Corporation. This provision is particularly important because it helps prevent immediate taxation on appreciated property while facilitating business operations.

Choosing the option that states the § 1245 depreciation recapture potential carries over to Crow Corporation is correct because § 1245 property, which includes tangible personal property subject to depreciation, requires that any gain recognized on the disposition of such property be treated as ordinary income to the extent of the depreciation taken. When Leah transfers the equipment, any potential depreciation recapture does not disappear; instead, it is transferred along with the property, affecting Crow Corporation in the future should they dispose of it.

This mechanism is crucial for maintaining an equitable tax treatment of the property as it moves through different stages of ownership. It prevents double taxation at the time of transfer, which allows Leah to engage in her business activities while retaining tax attributes related to the equipment.