The information presented is only of a general nature, intended simply as background material, is current only as of the latest revision date, October 15, 2007, omits many details and special rules and cannot be regarded as legal or tax advice.

Internal Revenue Code §§ 361 and 362

Target

In C or triangular C reorganizations, Target recognizes no gain upon receipt of Acquiring or Parent voting stock or of other property as long as Target distributes that other property to its shareholders, as will generally be the case because of the usual C reorganization requirement that Target liquidate. However, Target does recognize gain, but not loss, upon distribution to its shareholders of any such other property and assets not transferred to Acquiring.

In B or triangular B reorganizations, Target does not participate in any exchange, even constructively, and therefore has no gain or loss to recognize.

Acquiring, Parent and Sub

In forward triangular mergers, neither Acquiring nor Sub recognizes gain or loss on Sub's receipt of Target's assets in exchange for Acquiring stock.

In triangular B reorganizations and triangular C reorganizations, neither Parent nor Acquiring recognizes gain or loss on Acquiring's receipt of Target's assets or stock in exchange for Parent stock.

Similarly, neither Acquiring nor Sub recognizes gain or loss in a reverse triangular merger.

In A reorganizations and C and triangular C reorganizations, Acquiring's basis in the assets acquired from Target is generally equal to Target's former basis in those assets. In addition, in these cases, Acquiring succeeds to Target's tax attributes (e.g., earnings and profits and net operating loss carryovers).

Similarly, in forward triangular mergers, Sub's basis in the assets acquired from Target is generally equal to Target's former basis in those assets and Sub succeeds to Target's tax attributes.

In B and triangular B reorganizations, Acquiring's basis for the Target stock acquired from a Target shareholder is equal to the Target shareholder's basis, increased by any gain recognized by the shareholder in the reorganization.

In B and triangular B reorganizations and reverse triangular mergers, Target is the surviving corporation and retains its historic asset bases and tax attributes. In reverse triangular mergers Target succeeds to Sub's basis for its assets and tax attributes, although ordinarily Sub will be a newly formed Acquiring subsidiary without assets or tax attributes.

Under regulations adopted in 1995, in triangular reorganizations the effect of the reorganization on Parent's basis for its Acquiring (or Target) stock is generally determined as if Parent had acquired the Target assets tax-free and then contributed them to Acquiring (or Target).

© 2007