United States: Big A, Little C: Baby Steps Toward Modernizing Reorganizations

Since 1934, a tax-free reorganization has included a statutory merger or consolidation (an A reorganization).¹ However, the words "statutory merger or consolidation" have meant many things. Today, a statutory merger or consolidation includes transactions that Congress could not have conceived of in 1934. As the contours of state statutes have shifted, Treasury and the IRS have embraced an increasingly functional interpretation of the statutory merger or consolidation requirement that now encompasses state law mergers into disregarded entities and mergers and consolidations effected under foreign law.²

Against that backdrop, the government requested comments on whether A reorganization treatment should extend to (1) the acquisition by an acquiring corporation (Acquirer) of all of Target's stock followed by Target's related conversion under state law into a limited liability company (a stock acquisition/conversion³), or (2) an acquisition of all of Target's outstanding equity interests followed by a related election to change Target's U.S. tax entity classification from a corporation to a disregarded entity under reg. section 301.7701-3 (a stock acquisition/check-the-box (CTB) election⁴). This report refers to these transactions as "functional mergers."⁵ Neither transaction can qualify as an A reorganization under the Treasury regulations, and an example in the regulations concludes that a stock acquisition/conversion was not an A reorganization because Target continued to exist as a "juridical entity" after the second-step conversion.⁶ Consequently, functional mergers must satisfy the more demanding statutory requirements of section 368(a)(1)(C) (a C reorganization) or section 368(a)(1)(D) (a D reorganization) for tax-free treatment, which may be impossible in some cases. However, as the preamble to the regulations recognizes, each form of functional merger is similar to a technical merger insofar as the transaction accomplishes the simultaneous transfer of Target's assets to Acquirer and Target's elimination as a corporation for U.S. tax purposes.⁷

This report considers whether it is appropriate to extend A reorganization treatment to functional mergers that satisfy the business purpose, continuity of interest (COI), and continuity of business enterprise (COBE) requirements in reg. section 1.368-1. We acknowledge that a literal interpretation of section 368(a)(1)(A) would limit A reorganizations to acquisitions effected under a technical merger or a consolidation effected under applicable law; however, we note that section 368 does not define the phrase "statutory merger or consolidation." Moreover, Congress obviously did not foresee the advent of disregarded entities, which make functional mergers possible, when it created A reorganizations in 1934. Disregarded entities are unique in that they are separate legal entities but, absent an election to the contrary, are considered a branch or division of the entity's owner for U.S. tax purposes.⁸ Today, Acquirer can use a disregarded entity to acquire Target's assets for tax purposes without participating in the acquisition transaction for corporate law purposes. The question is whether transactions involving this unique entity warrant a unique definition of a statutory merger or consolidation.

Significantly, the government already has appropriately recognized that A reorganization treatment does not require that Target's assets and liabilities become the direct assets and liabilities of Acquirer under a statutory mechanic. The government's extension of the regulations to permit Target's merger into Acquirer's disregarded entity to qualify as an A reorganization is a particularly compelling example of this type of logical extension, because those transactions now qualify as A reorganizations even though Acquirer and Target do not merge under state law and the acquiring disregarded entity — the only Acquirer group party to the merger — is not a party to a reorganization under section 368(b).⁹ Likewise, we seek to establish that the absence of a technical merger under applicable law does not preclude a functional merger's treatment as an A reorganization.

As discussed below, compelling policy reasons support the treatment of functional mergers as A reorganizations, despite the absence of a technical merger or consolidation under current law. Functional mergers are substantially equivalent to technical mergers under state law; as such, amending the regulations to conform the treatment of functional mergers to those substantially equivalent transactions would continue the government's logical and measured pattern of broadening the regulations to address modern commercial realities.¹⁰ Moreover, treating functional mergers as A reorganizations would not contravene Congress's intent in promulgating A reorganizations, which was to preserve COI by Target shareholders. Finally, the government has ample authority under Chevron U.S.A. Inc. v. Natural Resources Defense Council Inc.¹¹ and its progeny to adopt our proposed regulatory changes.¹²

I. BACKGROUND

A. Section 368

The tax-free reorganization rules under section 368(a) exempt from gain recognition specified corporate combinations that "effect only a readjustment of continuing interest in property under modified corporate forms."¹³ An A reorganization is a statutory merger or consolidation.¹⁴ A C reorganization generally is an acquisition of substantially all of Target's properties¹⁵ solely in exchange for voting stock of Acquirer (or its immediate controlling parent corporation), or in exchange for that voting stock and a limited amount of money and/or other property¹⁶ if Target makes a liquidating distribution of the stock received and any other assets (with limited exceptions) to Target shareholders.¹⁷ A D reorganization generally includes Target's transfer of part or all of its assets to Acquirer if, immediately after the transfer, Target (or one or more of its shareholders) controls¹⁸ Acquirer and Acquirer stock or securities are distributed in a transaction qualifying under section 354 or 356.¹⁹

In addition to the applicable statutory requirements, an acquisitive reorganization must satisfy the business purpose, COI, and COBE requirements in reg. section 1.368-1. First, a reorganization requires a valid corporate business purpose,²⁰ such as the synergistic benefits that Acquirer expects to realize from the combination of Acquirer's and Target's respective businesses.²¹ Second, to prevent transactions that are in substance taxable sales from qualifying as reorganizations, the COI test generally requires that Acquirer stock represent at least 40 percent of the aggregate consideration delivered to Target shareholders.²² Third, the qualified group must satisfy the COBE test by either continuing Target's historic (most recently conducted) business or using a significant portion of Target's historic business assets in the qualified group's business.²³

B. Section 368(a)(1)(A) Regulations

For approximately 65 years after the 1934 adoption of the statutory merger or consolidation provision, the regulations generally defined the term "statutory merger or consolidation" simply as a merger or consolidation effected under the corporation laws of the United States, a state or territory thereof, or the District of Columbia.²⁴ Two events prompted the government's development of a new regulatory definition beginning in 2000: the adoption of the CTB regulations under section 7701 and the release of Rev. Rul. 2000-5, 2000-1 C.B. 436.

In 1997 the government released final regulations adopting the CTB regulations,²⁵ which generally treat an unincorporated entity that has a single owner as a disregarded entity for U.S. tax purposes, unless the entity affirmatively elects to be taxable as a corporation.²⁶ A disregarded entity, in turn, generally is treated for U.S. tax purposes as a branch or division of the disregarded entity's owner.²⁷ Accordingly, for U.S. tax purposes, a disregarded entity's assets, liabilities, and items of income, loss, and credit generally constitute assets, liabilities, and items of the disregarded entity's owner.²⁸

Initially, it was uncertain whether mergers involving disregarded entities could qualify as A reorganizations. In May 2000 the government issued proposed regulations that did not allow either the merger of Target into a disregarded entity (a DRE merger) or a merger of a disregarded entity into Target to qualify as an A reorganization.²⁹ The government withdrew the 2000 proposed regulations and issued new proposed regulations in November 2001 that allowed DRE mergers to qualify as A reorganizations, reasoning that that result was consistent with a disregarded entity's status as a division of its owner.³⁰ In January 2003 the government promulgated temporary regulations adopting that position.³¹

The 2003 regulations adopted a detailed definition of a statutory merger or consolidation that was also generally consistent with Rev. Rul. 2000-5, which addressed the tax treatment of two divisive transactions that qualified as mergers under applicable state law: (1) Target transferred some of its assets in exchange for Acquirer stock, retained the remainder of its assets, and remained in existence; and (2) Target transferred all its assets to two corporations in exchange for stock of both corporations and then liquidated. Rev. Rul. 2000-5 concluded that neither transaction qualified as an A reorganization. The first transaction was not an A reorganization because Acquirer did not acquire all of Target's assets and Target did not go out of existence, while the second transaction failed to qualify as an A reorganization because two corporations, rather than one, acquired Target's assets and liabilities in exchange for their stock.³²

In response to those developments, the current regulations define the parties to an A reorganization in terms of "combining units," which each consist of a "combining entity"—a corporation for U.S. tax purposes — and any disregarded entities owned by the combining entity.³³ The regulations provide the following functional definition of a statutory merger or consolidation:

The regulations essentially impose three requirements. First, Acquirer must effect the merger or consolidation under a statute or statutes under which the events described immediately below occur simultaneously at the effective time (the simultaneity test).³⁵ Second, the assets and liabilities of Target and its disregarded entities generally must become the assets and liabilities of the transferee unit (the combination test).³⁶ Third, Target must cease its separate legal existence for all purposes (the dissolution test).³⁷

C. Application of Step Transaction Doctrine

Current law provides two paths for effectively combining entities without a technical merger or liquidation: a stock acquisition/conversion and a stock acquisition/CTB election.

Most states now permit a corporation organized in the applicable jurisdiction to convert to an LLC.³⁸ Although the precise statutory requirements may vary, in most states compliance with applicable formalities (for example, filings) automatically vests the assets of the former corporation with the new LLC. The converting entity's state law existence survives the conversion despite the change in legal classification. Because no assets are transferred for state law purposes, no consent is required for the LLC's acquisition and assumption of the former corporation's assets and liabilities, as it would be if a parent corporation caused its corporate subsidiary to merge into the parent's wholly owned LLC.³⁹ A corporate subsidiary's conversion to a disregarded LLC wholly owned by its parent corporation, standing alone, generally constitutes a complete liquidation of the subsidiary under section 332.⁴⁰

Also, as discussed above, unincorporated U.S. entities and eligible foreign entities with a single owner generally can elect to be treated for U.S. tax purposes as a corporation or disregarded entity.⁴¹ Subject to some limits, the CTB regulations permit eligible entities to change their entity classification status for U.S. tax purposes.⁴² If an eligible entity classified as a corporation elects to be treated as a disregarded entity, the corporation is deemed to distribute all its assets and liabilities to the corporation's single owner in a section 332 liquidation.⁴³

The step transaction doctrine is a judicially developed variation of the substance-over-form rule articulated by the Supreme Court in Gregory v. Helvering,⁴⁴ which treats a series of separate steps as a single transaction if the substance of the steps is integrated, interdependent, and focused toward a particular result.⁴⁵ The Supreme Court has explained that "transitory phases of an arrangement frequently are disregarded under these sections of the revenue acts where they add nothing of substance to the completed affair."⁴⁶

The Tax Court has described the step transaction doctrine as a "particular manifestation of the more general tax law principle that purely formal distinctions cannot obscure the substance of the transaction."⁴⁷ A substantial body of case law and revenue rulings apply the step transaction doctrine to integrate a first-step stock acquisition and second-step asset acquisition and then test the integrated transaction for reorganization qualification.

King Enterprises Inc. v. United States⁴⁸ and J.E. Seagram Corp. v. Commissioner⁴⁹ are two examples of judicial application of the step transaction doctrine in this context. In King Enterprises and J.E. Seagram, the courts integrated an acquisition of all of Target's stock and the related state law merger of Target into Acquirer (and, in J.E. Seagram, Acquirer's merger subsidiary) and treated the integrated transaction as an A reorganization (and, in J.E. Seagram, as a section 368(a)(2)(D) reorganization).⁵⁰

More recently, in Rev. Rul. 2001-46, 2001-2 C.B. 321, the IRS examined a two-step transaction similar to those executed in King Enterprises and J.E. Seagram. After considering whether applying the step transaction doctrine would contravene section 338 policy, the revenue ruling ultimately applied the doctrine and treated the integrated stock acquisition and merger as an A reorganization.⁵¹ The IRS concluded that the congressional mandate that section 338 constitute the sole means of recharacterizing a stock purchase as an asset purchase applied only to taxable transactions, and that integrating the two steps in the revenue ruling as an A reorganization was permissible because doing so would not produce a cost basis in Target's assets.⁵²

Functional mergers typically occur in accordance with a written plan in effect at the time of the first-step acquisition of Target stock. The step transaction doctrine generally should integrate the two steps of a functional merger and test those steps for qualification as an asset reorganization.

To read this article in full, please click here.

Originally published in Tax Analysts 2013.

Footnotes

1 Section 368(a)(1)(A).

2 See reg. section 1.368-2.

3 Although this report generally contemplates a U.S. corporation's conversion to an LLC, the same analysis generally applies in determining whether A reorganization treatment is appropriate after a second-step, foreign law conversion in which an entity changes its legal status from an entity treated as a corporation for U.S. tax purposes to an entity eligible to be treated as a disregarded entity. See reg. section 301.7701-3(a) (eligible entity with a single member can elect to be treated either as a corporation or a disregarded entity for U.S. federal income tax purposes); reg. section 301.7701-2(b)(8) (listing foreign entities that are treated as per se corporations for U.S. tax purposes). Putative reorganizations involving foreign corporations generally must also satisfy section 367 and the regulations thereunder. Those issues are beyond the scope of this report.

4 Although this report generally contemplates an entity's election to be treated as a disregarded entity, the same analysis generally should apply in determining whether A reorganization treatment is appropriate after Target's related second-step election to be treated as a qualified subchapter S subsidiary under section 1361(b)(3)(B) or Target's related conversion into a qualified real estate investment trust subsidiary as defined in section 856(i)(2). See reg. section 1.368-2(b)(1)(i)(A) (defining disregarded entity for purposes of the A reorganization regulatory definition).

5 References in this report to "Target" mean the entity whose stock or assets are acquired, including under a functional merger.

6 See reg. section 1.368-2(b)(1)(iii), Example 9.

7 See T.D. 9242. For commentary addressing functional mergers, see American Bar Association Section of Taxation, "Comments on Final Regulations Defining the Term 'Statutory Merger or Consolidation"' (June 11, 2007) (ABA 2007 report); and comments from the New York State Bar Association Tax Section, "Section 368(a)(1)(A) Regulations Defining a 'Statutory Merger or Consolidation"' (Oct. 13, 2006) (NYSBA 2006 comments).

8 See reg. section 301.7701-2(a).

9 See REG-126485-01.

10 The state and local income tax consequences of functional mergers and technical mergers may differ. Those consequences are beyond the scope of this report.

11 467 U.S. 837 (1984). As discussed in Part III.C below, substantially similar reasoning would also support extending A reorganization treatment under certain circumstances to a wholly owned tax corporation's stand-alone (1) local law conversion to an LLC or other entity eligible to be treated as a disregarded entity or (2) election to change its U.S. tax classification to a disregarded entity, in each case, when the entity's owner for U.S. tax purposes is a tax corporation.

12 Although this report recommends that the government modify reg. section 1.368-2(b)(1) to permit functional mergers to qualify as A reorganizations, that result could also be confirmed through a legislative clarification by Congress. While a regulatory amendment is perhaps a more achievable goal, removing the word "statutory" from the A reorganization definition and granting Treasury broad authority to promulgate implementing regulations would be an ideal alternative. Others have made similar suggestions. See ABA 2007 report, supra note 7, at 24; NYSBA 2006 comments, supra note 7, at 10.

13 Reg. section 1.368-1(b).

14 Section 368(a)(1)(A). A reorganization treatment also applies to some triangular acquisitions. A forward triangular merger generally consists of Target's merger into a corporate merger subsidiary with the merger subsidiary surviving if the merger subsidiary acquires substantially all of Target's properties partly or entirely in exchange for stock of the merger subsidiary's immediate parent corporation which owns stock representing section 368(c) control of the merger subsidiary. The acquisition would satisfy section 368(a)(1)(A) if Target merged directly into the parent corporation and no stock of the merger subsidiary is used in the transaction. Section 368(a)(2)(D); reg. section 1.368-2(b)(2). A reverse triangular merger generally consists of a merger subsidiary's merger into Target with Target surviving, if the merger subsidiary's immediate parent corporation owns stock representing section 368(c) control of the merger subsidiary before the merger, Target's shareholders surrender in the transaction stock representing section 368(c) control of Target in exchange for parent corporation voting stock, and if immediately after the merger, Target holds substantially all of its and the merger subsidiary's properties. Section 368(a)(2)(E); reg. section 1.368-2(j)(3). For section 368(c) purposes, "control" means the ownership of at least 80 percent of the total voting power, and at least 80 percent of the total number of shares of each class of nonvoting stock, of the applicable corporation.

15 IRS advance ruling guidelines provide a strict safe harbor under which the "substantially all of the properties" requirement is satisfied only if Target's assets represent at least 90 percent of the fair market value of the net assets, and at least 70 percent of the FMV of the gross assets, held by Target immediately before the acquisition. See Rev. Proc. 77-37, 1977-2 C.B. 568, amplified by Rev. Proc. 86-42, 1986-2 C.B. 722. Notably, this requirement treats any Target assets distributed as part of the plan of reorganization as assets that were held by Target immediately before, but were not acquired in, the acquisition. Id. Therefore, an acquisition may fail to qualify as a C reorganization if Target distributes a portion of its assets shortly before the acquisition. See, e.g., Helvering v. Elkhorn Coal Co., 95 F.2d 732 (4th Cir. 1937) (Target's distribution of a portion of its assets to shareholders prevented the subsequent acquisition of Target from qualifying as a reorganization under the predecessor to section 368(a)(1)(C)).

16 See section 356(a)(1)(B).

17 Section 368(a)(1)(C), (2)(B), (2)(G). To qualify as a C reorganization, the sum of any boot paid (or deemed paid for U.S. tax purposes), plus any liabilities of Target assumed by Acquirer and the FMV of any Target assets that are not transferred to Acquirer, cannot exceed 20 percent of the FMV of Target's assets. Section 368(a)(2)(B). In other words, voting stock of Acquirer (or its immediate controlling parent corporation) must represent at least 80 percent of the FMV of Target's total assets.

18 "Control" in this context means the ownership of stock possessing at least 50 percent of the total combined voting power of all classes of stock entitled to vote, or at least 50 percent of the total value of shares of all classes of stock of the corporation (after the application of attribution rules). See section 368(a)(2)(H) (adopting the control standard in section 304(c)).

19 Section 368(a)(1)(D), (a)(2)(H). To satisfy section 354, Acquirer must acquire substantially all of Target's assets, and Target must distribute the stock, securities, and other property received in the acquisition, as well as any other property of Target, in accordance with the plan of reorganization. Section 354(a)-(b). Section 368 also treats some divisive transactions and single-company restructurings as a tax-free reorganization. Those reorganizations generally are beyond the scope of this report. See section 355 and section 368(a)(1)(D), (E), and (F).

20 Reg. section 1.368-1(c). This requirement is a regulatory adoption of the Supreme Court's decision in Gregory v. Helvering, 293 U.S. 465 (1935). In Gregory, the taxpayer was the sole shareholder of United Mortgage Corp., which itself owned Monitor Securities Corp. To avoid incurring tax, the taxpayer formed Averill Corp. and then had United Mortgage contribute its Monitor stock to Averill. Averill then distributed the Monitor stock to the taxpayer in a complete liquidation. The shareholder structured the transaction "for the sole purpose" of reducing her taxes by avoiding dividend treatment on the distribution of Monitor stock. Id. at 467. The Supreme Court said that Averill's formation and liquidation lacked a business purpose and instead constituted "an elaborate and devious form of conveyance masquerading as a corporate reorganization." Id. at 470. Accordingly, the Court held that the transaction "upon its face [lay] outside the plain intent of the statute." Id. at 469-470.

21 See, e.g., Am. Bronze Corp. v. Commissioner, 64 T.C. 1111, 1124-1125 (1975) (the reduction of administrative costs resulting from more streamlined corporate structure was a valid business purpose for reorganization); Wortham Mach. Co. v. United States, 375 F. Supp. 835, 838 (D. Wyo. 1974), aff'd, 521 F.2d 160 (10th Cir. 1975) (a reorganization must include a reformation or a reshaping of existing corporate business for the purpose of continuing the business in the new and changed corporate form).

22 Reg. section 1.368-1(e)(1)(i); see also Helvering v. Minn. Tea Co., 296 U.S. 378, 385 (1935) ("This interest must be definite and material; it must represent a substantial part of the value of the thing transferred. This much is necessary in order that the result accomplished may genuinely partake of the nature of merger or consolidation"). To this end, the Supreme Court has held that an acquisition satisfied the COI test when Target shareholders received Acquirer stock equal to approximately 38.5 percent of the aggregate consideration delivered, and the COI regulations include an example in which Acquirer stock represented 40 percent of the aggregate consideration received by Target shareholders in a reorganization. See John A. Nelson Co. v. Helvering, 296 U.S. 374 (1935); reg. section 1.368-1(e)(2)(v), Example 1.

23 Reg. section 1.368-1(d)(1) ("The policy underlying [COBE] . . . is to ensure that reorganizations are limited to readjustments of continuing interests in property under modified corporate form"); see also H.R. Rep. No. 83-1337, at A134 (1954) (a corporation may not acquire assets with the intention of transferring them to a "stranger"). A qualified group generally includes the issuing corporation, one or more corporations in which the issuing corporation directly owns stock representing section 368(c) control, and any other corporations in which group members' aggregate ownership constitutes section 368(c) control directly or through certain partnerships. Reg. section 1.368-1(d)(4)(ii). An issuing corporation is generally Acquirer, or its immediate parent corporation in the case of a triangular reorganization. Reg. section 1.368-1(b). If Target has more than one line of business, the business continuity test requires only that the qualified group continue a significant line of business. Reg. section 1.368-1(d)(2)(ii).

24 See T.D. 4585; see also Thomas W. Avent, "The Evolution of the A Reorganization," 138 Corporate Tax Practice Series, at 9-11 (2009) (providing long-standing regulatory definition of statutory merger or consolidation in effect before the 2003 temporary regulations).

25 See reg. section 301.7701-1(f). The government first announced consideration of an elective entity classification scheme in 1995. See Notice 95-14, 1995-1 C.B. 297. Initially, the Supreme Court determined that corporate classification generally depended on the existence of six factors: (1) associates, (2) a business objective and intent to divide profits, (3) perpetual life of the organization, (4) centralized management, (5) freely transferable ownership interests, and (6) limited liability. Morrissey v. Commissioner, 296 U.S. 344, 359-360 (1935). In 1960 the government issued regulations based on the last four factors (the Kintner regulations). Under the Kintner regulations, an unincorporated entity that exhibited at least two of the listed factors generally was taxable as a corporation; if the entity possessed two or fewer of those characteristics, it generally was taxable as a partnership. Former reg. section 301.7701-2(a)(1)-(2). Over time, the Kintner regulations became difficult to administer, principally because of the emergence of hybrid entities, such as LLCs, that could usually achieve their desired tax classification with proper planning.

26 Reg. section 301.7701-3(b).

27 Reg. section 301.7701-2(a).

28 Id.; see ILM 200235023 ("When the single member owner is the taxpayer, the Service may recover the tax liability [resulting from the operations of a single-member LLC that is a disregarded entity] from the property and rights to property of the single member owner, but the single member owner under state law has no interest in the assets of the LLC. In short, the Service may not look to the LLC's assets to satisfy the tax liability of the single member owner").

29 Prop. reg. section 1.368-2(b)(1).

30 REG-126485-01.

31 See T.D. 9038. Part III below discusses in detail the government's reasoning in the 2000 proposed regulations and the 2001 proposed regulations.

32 The IRS emphasized that divisive transactions generally must satisfy all the requirements of section 355 to qualify as a reorganization. The IRS likely issued Rev. Rul. 2000-5 in response to the enactment of the Texas Business Corporation Act (TBCA) in 1998, which permitted divisive transactions to qualify as mergers under Texas law. See TBCA Ann. art. 1.02(A)(18) (defining a merger to include "the division of a domestic corporation into two or more new domestic corporations or into a surviving corporation and one or more new domestic or foreign corporations or other entities"); see also Avent, supra note 24, at 14 (discussing the TBCA).

33 Reg. section 1.368-2(b)(1)(i)(C).

34 Reg. section 1.368-2(b)(1)(ii).

35 See reg. section 1.368-2(b)(1)(ii) (flush language).

36 See reg. section 1.368-2(b)(1)(ii)(A).

37 See reg. section 1.368-2(b)(1)(ii)(B).

38 See, e.g., Del. Code Ann. tit. 8, section 266; N.J. Rev. Stat. section 42:2C-78; Cal. Corp. Code section 1151; Tex. Bus. Orgs. Code Ann. section 10.101; Mass. Gen. Laws ch. 156D, section 9.50; Fla. Stat. section 607.1112.

39 See ABA 2007 report, supra note 7, at 8; NYSBA 2006 comments, supra note 7, at 9.

40 See, e.g., LTR 201252014; LTR 20121301 ; LTR 201107003.

41 Reg. section 301.7701-3(a).

42 Reg. section 301.7701-3(c)(1).

43 Reg. section 301.7701-3(g)(1)(iii); see, e.g., Dover v. Commissioner, 122 T.C. 324, 347 (2004) (The IRS "specifically acknowledges that, for tax purposes, [the corporation's disregarded entity election] constituted a deemed section 332 liquidation . . . and states that there is no difference between [that election] and an actual section 332 liquidation"); LTR 200709013; LTR 200206051 (entity classification change from corporation to disregarded entity was treated as a section 332 liquidation of the corporation).

44 293 U.S. 465 (1935).

45 See, e.g., Boris I. Bittker and James S. Eustice, 1 Federal Income Taxation of Corporations and Shareholders, para. 12.61[3], at 12-252 to 12-255 (2002); Seymour S. Mintz andWilliam T. Plumb Jr., "Step Transactions in Corporate Reorganizations," 12 N.Y.U. Inst. Fed. Tax'n 247 (1954).

46 Helvering v. Alabama Asphaltic Limestone Co., 315 U.S. 179, 184-185 (1942).

47 Superior Coach of Fla. v. Commissioner, 80 T.C. 895, 905 (1983).

48 418 F.2d 511 (Ct. Cl. 1969).

49 104 T.C. 75 (1995).

50 J.E. Seagram Corp., 104 T.C. at 104-105; King Enters Inc., 418 F.2d at 519; see also Rev. Rul. 72-405, 1972-2 C.B. 217 (a corporate merger subsidiary acquired all of Target's assets solely in exchange for stock of the merger subsidiary's immediate parent corporation and then liquidated into the parent; the IRS rejected the "transitory passage" of Target's assets through the merger subsidiary, integrated the asset acquisition and liquidation, and treated the integrated transaction as a C reorganization); Rev. Rul. 67-274, 1967-2 C.B. 141 (Acquirer acquired all of Target's stock solely in exchange for Acquirer voting stock, and then liquidated Target under the same plan; the IRS integrated the stock acquisition and the liquidation and treated the integrated transaction as a C reorganization).

51 The stock acquisition viewed alone was a qualified stock purchase, i.e., a "purchase" of at least 80 percent (by vote and value) of Target's stock by another corporation within a 12- month period, which is a prerequisite to section 338's application. See section 338(d)(3); see also Rev. Rul. 2008-25, 2008-1 C.B. 986; Rev. Rul. 90-95, 1990-2 C.B. 67 (taxable stock acquisition of Target treated separately from Target's related section 332 liquidation).

52 See reg. section 1.338(h)(10)-1(c)(2) and (e), examples 11-13; see also Rev. Rul. 2001-26, 2001-1 C.B. 1297 (integrating Target's acquisition under a tender offer and reverse subsidiary merger; integrated transaction satisfied "control for voting stock" requirement and qualified as a section 368(a)(2)(E) reorganization).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.