It may come as a shock to many, but capitalizing a small farm or ranch corporation with debt securities as well as stock was relatively common until 1989.1 In that year, the Omnibus Budget Reconciliation Act of 19892 decreed that debt securities issued in a tax-free exchange were to be treated as boot.3 Gain has long been recognized to the extent of “boot” received by the transferor.4
Harl, Neil E.
"Handling Debt Securities in Small Farm and Ranch Corporations,"
Agricultural Law Digest: Vol. 22
, Article 1.
Available at: http://lib.dr.iastate.edu/aglawdigest/vol22/iss20/1