What is a section 368 Reorganization?
Internal Revenue Code (IRC) Section 368 allows merger and acquisition transactions to qualify as a reorganization when an acquiring corporation gives a substantial amount of its own stock as consideration to the acquired (or “target”) corporation.
What is a tax free reorganization?
Certain types of corporate acquisitions, divisions, and other restructurings which are generally not taxable at the corporate or stockholder level. The transaction must meet strict statutory and non-statutory requirements (see IRC § 368 and Treasury Regulations ).
What is a Type D reorganization?
A Type D reorganization involves a transfer of assets between corporations. However, the most common uses of D reorganizations involve the splitting of one corporation into two or more corporations in transactions commonly described as split-ups, split-offs, and spinoffs.
What is continuity doctrine?
Continuity-of-entity doctrine is a principle where by a company is held to be a continuation of an existing entity, and therefore subject to successor liability when the two entities have significant shared features like the identity of stock, shareholders, and directors.
Does section 368 apply to S corps?
This rule therefore acknowledges that an S corporation can generally participate in a tax-free reorganization under Section 368, acquire the assets or stock of another C or S corporation, including a consolidated group of corporations, engage in a tax-free split-up, split-off or spin-off under Section 355, or engage in …
What is a section 368 A )( 1 )( F?
Section 368(a)(1) describes several types of transactions that constitute reorganizations. One of these, described in section 368(a)(1)(F), is “a mere change in identity, form, or place of organization of one corporation, however effected” (a Mere Change).
Can S corporation do tax-free reorganization?
In a tax-free reorganization, an S-corporation can be the target corporation or acquiring corporation, or both. Acquisitive reorganizations are transactions where one corporation acquires the stock or assets of another corporation.
What is an upstream C reorganization?
An upstream C with a drop is a tax-free upstream Sec. 368(a)(1)(C) reorganization of a subsidiary’s assets (an upstream C), followed by a tax-free contribution of some of the subsidiary’s assets to a new corporation (a drop). The assets not reincorporated are left in the parent corporation’s hands.
What is a 355 spin off?
Section 355 of the Internal Revenue Code provides a powerful tool in corporate restructurings. A split-off occurs where the parent distributes stock of the controlled corporation to some of its shareholders in exchange for their stock in the distributing parent.
What is continuity of interest?
What is the Continuity of Interest Doctrine? The doctrine, (or CID, also known as Continuity of Proprietary Interest) stipulates that a corporate acquisition of a target firm can be done on a tax-free basis if the shareholders of the acquired company receive and hold an equity stake in the acquiring company.
What is business enterprise continuity?
The continuity of business enterprise doctrine is a taxation principle applicable to corporate mergers and acquisitions. The purchasing entity must maintain the business operationally or retain most of the assets when two entities merge to get tax-deferred status.
