Federal Taxation: Corporations, Partnerships, Estates & Trusts
Corporate Acquisitions & Reorganizations - Tax planning considerations
Why use a reorganization instead of a taxable transaction
Avoiding the reorganization provisions
Reorganization is a concept that is defined by paragraph A of Section 368(a) (1) of the IRC as being "a statutory merger or consolidation." To elaborate: A statutory merger involves transfer of seller assets and liabilities to the buyer in exchange for the buyer's stock. A statutory consolidation, on the other hand, involves the two companies transferring their assets to a new one in exchange for the stock of that new one. In both cases, the entity that sells is liquidated. This called reorganization
There are three types of reorganizations, and each of them has their specific reasons for being more beneficial than using the taxable transaction.
The three types are the following:
Type "A" Reorganization:
This is primarily of benefit to the seller who can obtain some cash, debt, or preferred stock as part of the purchase price, while still retaining tax deferred status on the price...
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