What is Tax-free reorganization?
In short
Corporate reorganizations that meet the tax code's definitions, such as statutory mergers (Type A), stock-for-stock acquisitions (Type B) and stock-for-assets acquisitions (Type C), let corporations and shareholders defer gain.
Key takeaways
- They require continuity of shareholder interest, continuity of business enterprise and a business purpose.
- Boot received is taxable to the extent of the gain realized.
- A recapitalization (Type E) or a mere change in form or place of incorporation (Type F) can also qualify.
Where it's tested
TCP: Distributions, Redemptions & Liquidations — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A shareholder owns 70% of a corporation's stock. Following a redemption, she owns 52%. Ignoring attribution, does the redemption qualify as substantially disproportionate?