What are the general requirements for a tax-free corporate reorganization under section 368?
Four Conditions of a 368 Reorganization To qualify for the tax-deferral treatment provided by Section 368, four different conditions must be met. These conditions are continuity of ownership interest, continuity of business enterprise, valid business purpose and the step transaction doctrine.
What is a 368 A 1 F reorganization?
F reorganization defined. Sec. 368(a)(1)(F) provides that an F reorganization is a mere change in identity, form, or place of organization of one corporation, however effected. Although the definition of an F reorganization seems short and simple, it does leave ambiguity as to the specific requirements.
What is Type C reorganization?
A C-reorganization, otherwise known as a “practical merger,” is where a target. corporation (“Target”) transfers “substantially all” of its properties to an acquiring. corporation (“Acquiror”) solely in exchange for all or a part of Acquiror’s “voting.
What is an F reorganization?
The I.R.C. defines a F Reorganization as “a mere change in identity, form, or place of organization of one corporation, however effected.”[1] This mere change can be accomplished in many ways and for different reasons.
What is 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 ).
How does a tax free reorganization work?
A target shareholder who receives boot in a type A reorganization recognizes gain to the extent of the lesser of the boot or the gain realized upon the exchange of the stock. If other shareholders do not receive boot, they do not recognize gain. Thus, the transaction is still termed tax-free.
Can an LLC do an F reorganization?
A company might also undergo an F reorganization, convert from an S corporation to a single member LLC, and then contribute the single member LLC interest to a new C corporation.
Can an LLC be a QSub?
Unlike a single-member LLC, however, the state law existence of a QSub as a corporate entity, as well as certain longstanding federal tax doctrines regarding corporate entities, create issues and complexities that are unique to the QSub regime.
What is a Type B reorganization?
A Type “B” reorganization is a stock-for-stock transaction in which one corporation (the acquiring corporation) acquires the stock of another corporation (the target corporation). Only voting stock of the acquiring corporation or its parent may be used in the acquisition.
Can a disregarded entity own an S corporation?
These LLCs are called disregarded entities by the IRS, and, in accordance with IRS rulings, are allowed to own a stake in an S Corporation. This is subject to the same restrictions as all the other owners of an S Corporation.
How do I qualify for tax free reorganization?
To qualify as a tax-free reorganization, stock of the buyer (or buyer’s affiliate) generally must be used as a significant portion of the consideration (varying from about 40% to 100% of the consideration, depending on the type of tax-free reorganization) and, in certain tax-free reorganizations, the stock must be …
Who must file Form 8806?
reporting corporation
A reporting corporation must file Form 8806 to report an acquisition of control or a substantial change in the capital structure of a domestic corporation. The reporting corporation or any shareholder is required to recognize gain (if any) under section 367(a) and the related regulations as a result of the transaction.
How to manage a tax-free reorganization?
Managing a tax-free reorganization is entirely dependent on the tax jurisdiction a company is in. A tax-free reorganization is done not necessarily to grant a tax exemption and thereby put the company in a better position. It is done to reduce any tax consequences of an already impending reorganization.
What is a type a reorganization under IRS code?
Section 368 Section 368 (A) (1) outlines a format for US tax treatment of corporate reorganizations, as described in the Internal Revenue Code of 1986. . Type A reorganization: A merger or consolidation, all privy to the relevant state or federal tax laws.
What is the difference between a tax-free reorganization and an acquisition?
The primary tax difference between a taxable stock sale or purchase (to which the Sec. 338 elections do not apply) and a tax – free acquisitive reorganization is that the selling shareholders can defer the gain on the disposition of their target shares when they participate in a tax – free reorganization.
How many types of reorganizations are there in the US?
These reorganizations can be further divided into four sub-categories. The letters attached to each type of category are based on their subsection clause as found in IRC Section 368 Section 368 Section 368 (A) (1) outlines a format for US tax treatment of corporate reorganizations, as described in the Internal Revenue Code of 1986. .