§368 — Definitions relating to corporate reorganizations
111 cases·15 followed·22 distinguished·2 questioned·5 criticized·1 overruled·66 cited—14% support
Statute Text — 26 U.S.C. §368
For purposes of parts I and II and this part, the term “reorganization” means—
a statutory merger or consolidation;
the acquisition by one corporation, in exchange solely for all or a part of its voting stock (or in exchange solely for all or a part of the voting stock of a corporation which is in control of the acquiring corporation), of stock of another corporation if, immediately after the acquisition, the acquiring corporation has control of such other corporation (whether or not such acquiring corporation had control immediately before the acquisition);
the acquisition by one corporation, in exchange solely for all or a part of its voting stock (or in exchange solely for all or a part of the voting stock of a corporation which is in control of the acquiring corporation), of substantially all of the properties of another corporation, but in determining whether the exchange is solely for stock the assumption by the acquiring corporation of a liability of the other shall be disregarded;
a transfer by a corporation of all or a part of its assets to another corporation if immediately after the transfer the transferor, or one or more of its shareholders (including persons who were shareholders immediately before the transfer), or any combination thereof, is in control of the corporation to which the assets are transferred; but only if, in pursuance of the plan, stock or securities of the corporation to which the assets are transferred are distributed in a transaction which qualifies under section 354, 355, or 356;
a recapitalization;
a mere change in identity, form, or place of organization of one corporation, however effected; or
a transfer by a corporation of all or part of its assets to another corporation in a title 11 or similar case; but only if, in pursuance of the plan, stock or securities of the corporation to which the assets are transferred are distributed in a transaction which qualifies under section 354, 355, or 356.
If a transaction is described in both paragraph (1)(C) and paragraph (1)(D), then, for purposes of this subchapter (other than for purposes of subparagraph (C)), such transaction shall be treated as described only in paragraph (1)(D).
If—
one corporation acquires substantially all of the properties of another corporation,
the acquisition would qualify under paragraph (1)(C) but for the fact that the acquiring corporation exchanges money or other property in addition to voting stock, and
the acquiring corporation acquires, solely for voting stock described in paragraph (1)(C), property of the other corporation having a fair market value which is at least 80 percent of the fair market value of all of the property of the other corporation,
then such acquisition shall (subject to subparagraph (A) of this paragraph) be treated as qualifying under paragraph (1)(C). Solely for the purpose of determining whether clause (iii) of the preceding sentence applies, the amount of any liability assumed by the acquiring corporation shall be treated as money paid for the property.
A transaction otherwise qualifying under paragraph (1)(A), (1)(B), or (1)(C) shall not be disqualified by reason of the fact that part or all of the assets or stock which were acquired in the transaction are transferred to a corporation controlled by the corporation acquiring such assets or stock. A similar rule shall apply to a transaction otherwise qualifying under paragraph (1)(G) where the requirements of subparagraphs (A) and (B) of section 354(b)(1) are met with respect to the acquisition of the assets.
The acquisition by one corporation, in exchange for stock of a corporation (referred to in this subparagraph as “controlling corporation”) which is in control of the acquiring corporation, of substantially all of the properties of another corporation shall not disqualify a transaction under paragraph (1)(A) or (1)(G) if—
no stock of the acquiring corporation is used in the transaction, and
in the case of a transaction under paragraph (1)(A), such transaction would have qualified under paragraph (1)(A) had the merger been into the controlling corporation.
A transaction otherwise qualifying under paragraph (1)(A) shall not be disqualified by reason of the fact that stock of a corporation (referred to in this subparagraph as the “controlling corporation”) which before the merger was in control of the merged corporation is used in the transaction, if—
after the transaction, the corporation surviving the merger holds substantially all of its properties and of the properties of the merged corporation (other than stock of the controlling corporation distributed in the transaction); and
in the transaction, former shareholders of the surviving corporation exchanged, for an amount of voting stock of the controlling corporation, an amount of stock in the surviving corporation which constitutes control of such corporation.
If immediately before a transaction described in paragraph (1) (other than subparagraph (E) thereof), 2 or more parties to the transaction were investment companies, then the transaction shall not be considered to be a reorganization with respect to any such investment company (and its shareholders and security holders) unless it was a regulated investment company, a real estate investment trust, or a corporation which meets the requirements of clause (ii).
A corporation meets the requirements of this clause if not more than 25 percent of the value of its total assets is invested in the stock and securities of any one issuer, and not more than 50 percent of the value of its total assets is invested in the stock and securities of 5 or fewer issuers. For purposes of this clause, all members of a controlled group of corporations (within the meaning of section 1563(a)) shall be treated as one issuer. For purposes of this clause, a person holding stock in a regulated investment company, a real estate investment trust, or an investment company which meets the requirements of this clause shall, except as provided in regulations, be treated as holding its proportionate share of the assets held by such company or trust.
For purposes of this subparagraph the term “investment company” means a regulated investment company, a real estate investment trust, or a corporation 50 percent or more of the value of whose total assets are stock and securities and 80 percent or more of the value of whose total assets are assets held for investment. In making the 50-percent and 80-percent determinations under the preceding sentence, stock and securities in any subsidiary corporation shall be disregarded and the parent corporation shall be deemed to own its ratable share of the subsidiary’s assets, and a corporation shall be considered a subsidiary if the parent owns 50 percent or more of the combined voting power of all classes of stock entitled to vote, or 50 percent or more of the total value of shares of all classes of stock outstanding.
For purposes of this subparagraph, in determining total assets there shall be excluded cash and cash items (including receivables). Government securities, and, under regulations prescribed by the Secretary, assets acquired (through incurring indebtedness or otherwise) for purposes of meeting the requirements of clause (ii) or ceasing to be an investment company.
This subparagraph shall not apply if the stock of each investment company is owned substantially by the same persons in the same proportions.
If an investment company which does not meet the requirements of clause (ii) acquires assets of another corporation, clause (i) shall be applied to such investment company and its shareholders and security holders as though its assets had been acquired by such other corporation. If such investment company acquires stock of another corporation in a reorganization described in section 368(a)(1)(B), clause (i) shall be applied to the shareholders of such investment company as though they had exchanged with such other corporation all of their stock in such company for stock having a fair market value equal to the fair market value of their stock of such investment company immediately after the exchange. For purposes of section 1001, the deemed acquisition or exchange referred to in the two preceding sentences shall be treated as a sale or exchange of property by the corporation and by the shareholders and security holders to which clause (i) is applied.
For purposes of clauses (ii) and (iii), the term “securities” includes obligations of State and local governments, commodity futures contracts, shares of regulated investment companies and real estate investment trusts, and other investments constituting a security within the meaning of the Investment Company Act of 1940 (
15 U.S.C. 80a–2(a)(36)
).
Repealed.
Pub. L. 98–369, div. A, title I, § 174(b)(5)(D)
,
July 18, 1984
,
98 Stat. 707
]
A transaction shall fail to meet the requirements of paragraph (1)(C) unless the acquired corporation distributes the stock, securities, and other properties it receives, as well as its other properties, in pursuance of the plan of reorganization. For purposes of the preceding sentence, if the acquired corporation is liquidated pursuant to the plan of reorganization, any distribution to its creditors in connection with such liquidation shall be treated as pursuant to the plan of reorganization.
The Secretary may waive the application of clause (i) to any transaction subject to any conditions the Secretary may prescribe.
For purposes of determining whether a transaction qualifies under paragraph (1)(D)—
in the case of a transaction with respect to which the requirements of subparagraphs (A) and (B) of section 354(b)(1) are met, the term “control” has the meaning given such term by section 304(c), and
in the case of a transaction with respect to which the requirements of section 355 (or so much of section 356 as relates to section 355) are met, the fact that the shareholders of the distributing corporation dispose of part or all of the distributed stock, or the fact that the corporation whose stock was distributed issues additional stock, shall not be taken into account.
For purposes of this part, the term “title 11 or similar case” means—
a case under title 11 of the United States Code, or
a receivership, foreclosure, or similar proceeding in a Federal or State court.
In applying paragraph (1)(G), a transfer of the assets of a corporation shall be treated as made in a title 11 or similar case if and only if—
any party to the reorganization is under the jurisdiction of the court in such case, and
the transfer is pursuant to a plan of reorganization approved by the court.
If a transaction would (but for this subparagraph) qualify both—
under subparagraph (G) of paragraph (1), and
under any other subparagraph of paragraph (1) or under section 332 or 351,
then, for purposes of this subchapter (other than section 357(c)(1)), such transaction shall be treated as qualifying only under subparagraph (G) of paragraph (1).
For purposes of subparagraphs (A) and (B), in the case of a receivership, foreclosure, or similar proceeding before a Federal or State agency involving a financial institution referred to in section 581 or 591, the agency shall be treated as a court.
In the case of a title 11 or similar case, the requirement of clause (ii) of paragraph (2)(E) shall be treated as met if—
no former shareholder of the surviving corporation received any consideration for his stock, and
the former creditors of the surviving corporation exchanged, for an amount of voting stock of the controlling corporation, debt of the surviving corporation which had a fair market value equal to 80 percent or more of the total fair market value of the debt of the surviving corporation.
For purposes of this part, the term “a party to a reorganization” includes—
a corporation resulting from a reorganization, and
both corporations, in the case of a reorganization resulting from the acquisition by one corporation of stock or properties of another.
In the case of a reorganization qualifying under paragraph (1)(B) or (1)(C) of subsection (a), if the stock exchanged for the stock or properties is stock of a corporation which is in control of the acquiring corporation, the term “a party to a reorganization” includes the corporation so controlling the acquiring corporation. In the case of a reorganization qualifying under paragraph (1)(A), (1)(B), (1)(C), or (1)(G) of subsection (a) by reason of paragraph (2)(C) of subsection (a), the term “a party to a reorganization” includes the corporation controlling the corporation to which the acquired assets or stock are transferred. In the case of a reorganization qualifying under paragraph (1)(A) or (1)(G) of subsection (a) by reason of paragraph (2)(D) of that subsection, the term “a party to a reorganization” includes the controlling corporation referred to in such paragraph (2)(D). In the case of a reorganization qualifying under subsection (a)(1)(A) by reason of subsection (a)(2)(E), the term “party to a reorganization” includes the controlling corporation referred to in subsection (a)(2)(E).
For purposes of part I (other than section 304), part II, this part, and part V, the term “control” means the ownership of stock possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote and at least 80 percent of the total number of shares of all other classes of stock of the corporation.
Treasury Regulations
- Treas. Reg. §Treas. Reg. §1.368-1 Purpose and scope of exception of reorganization exchanges
- Treas. Reg. §Treas. Reg. §1.368-1(a) Reorganizations.
- Treas. Reg. §Treas. Reg. §1.368-1(b) Purpose.
- Treas. Reg. §Treas. Reg. §1.368-1(c) Scope.
- Treas. Reg. §Treas. Reg. §1.368-1(d) Continuity of business enterprise—(1) General rule.
- Treas. Reg. §Treas. Reg. §1.368-1(e) Continuity of interest—(1) General rule.
- Treas. Reg. §Treas. Reg. §1.368-1(i) §1.368-1(i)
- Treas. Reg. §Treas. Reg. §1.368-1(v) Examples.
- Treas. Reg. §Treas. Reg. §1.368-2 Definition of terms
- Treas. Reg. §Treas. Reg. §1.368-2(a) The application of the term reorganization is to be strictly limited to the specific transactions set forth in section 368(a).
- Treas. Reg. §Treas. Reg. §1.368-2(b) §1.368-2(b)
- Treas. Reg. §Treas. Reg. §1.368-2(c) In order to qualify as a “reorganization” under section 368(a)(1)(B), the acquisition by the acquiring corporation of stock of another corporation must be in exchange solely for all or a part of the voting stock of the acquiring corporation (or, in the case of transactions occurring after December 31, 1963, solely for all or a part of the voting stock of a corporation which is in control of the acquiring corporation), and the acquiring corporation must be in control of the other corporation imme
- Treas. Reg. §Treas. Reg. §1.368-2(d) §1.368-2(d)
- Treas. Reg. §Treas. Reg. §1.368-2(e) §1.368-2(e)
- Treas. Reg. §Treas. Reg. §1.368-2(f) The term a party to a reorganization includes a corporation resulting from a reorganization, and both corporations, in a transaction qualifying as a reorganization where one corporation acquires stock or properties of another corporation.
- Treas. Reg. §Treas. Reg. §1.368-2(g) The term plan of reorganization has reference to a consummated transaction specifically defined as a reorganization under section 368(a).
- Treas. Reg. §Treas. Reg. §1.368-2(h) As used in section 368, as well as in other provisions of the Internal Revenue Code, if the context so requires, the conjunction “or” denotes both the conjunctive and the disjunctive, and the singular includes the plural.
- Treas. Reg. §Treas. Reg. §1.368-2(i) Resulting corporation stock distributed in exchange for transferor corporation stock.
- Treas. Reg. §Treas. Reg. §1.368-2(j) §1.368-2(j)
- Treas. Reg. §Treas. Reg. §1.368-2(k) Certain transfers of assets or stock in reorganizations—(1) General rule.
- Treas. Reg. §Treas. Reg. §1.368-2(l) Certain transactions treated as reorganizations described in section 368(a)(1)(D)—(1) General rule.
- Treas. Reg. §Treas. Reg. §1.368-2(m) Qualification as a reorganization under section 368(a)(1)(F)—(1) Mere change.
- Treas. Reg. §Treas. Reg. §1.368-2(v) Resulting corporation is the only acquiring corporation.
- Treas. Reg. §Treas. Reg. §1.368-3 Records to be kept and information to be filed with returns
- Treas. Reg. §Treas. Reg. §1.368-3(a) Parties to the reorganization.
111 Citing Cases
Unlike the creditors involved in the instant cases, the credito s involved in the Al bama Asphaltic progeny took proactive steps to enforce or protect their rights in the insol- vent corporations' propertieä, such as filing a foreclosure action under mortgages secur ng the insolvent corporation's "A suming arguendo that Holdings III, which the parties agree w uld be the target corporation in a reorganization quali- fying u der sec. 368(a) (1) (C) or (G), were insolvent and that it were correct u
368(a)(1)(A), we need not decide or address respondent’s various substance-over-form scenarios.
merged into Clarkston pursuant to section 368, and filed a final tax return as a C corporation for the period ended April 30, 2000.
espect to its acquisi ion of Ralphs; (3) F I would be entitled to make an election under section 338 (h) (10) with respect to the Ralphs transac ion; and (4) any such elections would not adversely affect ertain rulings that the IRS was expected to issue with respect to whether the merge of Allied and Federated" consti- tuted a reorganization under section 368 (a) (1) (G) .
tain transactions may occur in such a way that ownership interests are exchanged, yet no taxable event is deemed to have taken place. One instance where nonrecognition is provided involves corporate reorganizations that come within the provisions of section 368. The income tax regulations explain the rationale behind the reorganization provisions as follows: Under the general rule, upon the exchange of property, gain or loss must be accounted for if the new property differs in a material particu
-02. Filed September 27, 2005. In 1998, Times Mirror’s investment subsidiary, TMD, divested itself of a legal publishing business through the Bender transaction. The transaction was intended and designed to qualify as a tax-free reorganization under sec. 368, I.R.C. R determined that the transaction was a taxable sale by TMD to Reed. Held: The primary consideration received in the transaction was control over $1.375 billion paid by Reed. Held, further, the Bender transaction did not qualify as a
On or about December 15, 1998, pursuant to section 368 (a) (1) (A).y Marc,[ Lakeview, and .Pleasant Praisi-e.merged into Marc Development Cornpany, a.
of taking over its operation, the transaction may have failed to meet the nonstatutory requirement of continuity of business enterprise (COBE), applicable to any reorganization described in section 368(a) and firmly embedded in the regulations under section 368. See sec. 1.368-1(d), Income Tax 13 Because petitioner already owned the stock of JKP there was no need for an actual exchange of 2618's assets for JKP stock followed by a distribution of the stock to petitioner. As respondent acknowledge
merged into Clarkston pursuant to section 368 and filed a final tax return as a C corporation for the period ended April 30, 2000.
. (BFI). On August 31, 1990, Browning Ferris Industries of Minnesota, Inc. (BFIM), agreed to purchase Metro. BFIM exchanged 212,233 common shares of BFI, BFIM’s parent, for Metro’s assets in a transaction intended to be a tax-free merger pursuant to section 368. The merger agreement provided that Metro could not transfer the BFI stock to Butler and McGraw until BFI issued financial statements showing the combined operations of Metro and BFI. On December 4, 1990, BFI transferred 141,489 shares of
. (BFI). On August 31, 1990, Browning Ferris Industries of Minnesota, Inc. (BFIM), agreed to purchase Metro. BFIM exchanged 212,233 common shares of BFI, BFIM’s parent, for Metro’s assets in a transaction intended to be a tax-free merger pursuant to section 368. The merger agreement provided that Metro could not transfer the BFI stock to Butler and McGraw until BFI issued financial statements showing the combined operations of Metro and BFI. On December 4, 1990, BFI transferred 141,489 shares of
Thus, Gold Crown’s identifying itself as a “transferee” did not serve as notice to respondent that it was “acting for another person in a fiduciary capacity.” See § 6903(a); see also §§ 6901(h), 7701(a)(6); Treas.
at 45; see also Starnes v.
at 45; see also Starnes v.
at 45; see also Starnes v.
at 45; see also Starnes v.
eorganization under then-applicable law, such that her wholly owned 35Courts and commentators have variously characterized Gregory v. Helvering, 293 U.S. 465 (1935), as: (1) interpolating a business purpose requirement into the predecessor statute ofsec. 368, see, e.g., Bazley v. Commissioner, 4 T.C. 897, 901-902 (1945), aff'd, 155 F.2d 237 (3d Cir. 1946), affd, 331 U.S. 737 (1947); Cummings, supra, at 1246-1247; (2) reading a business purpose requirement into the Code more generally, see, e.g.,
1-152, sec. 1409, 124 Stat. at 1067-1070 (codified at sec. 7701(o)). Courts and commentators have variously characterized Gregory v. Helvering, 293 U.S. 465 (1935), as: (1) interpolating a business purpose requirement into the predecessor statute of sec. 368, see, e.g., Bazley v. Commissioner, 4 T.C. 897, 901-902 (1945), aff’d, 155 F.2d 237 (3d Cir. 1946), aff’d, 331 U.S. 737 (1947); Cummings, supra, at 1246-1247; (2) reading a business purpose requirement into the Code more generally, see, e.g.
6901(h); see also sec.
The Merger is intended to qualify as a tax-free reorganization under Section 368 of the Code.
In 1999, as part of a tax-free reorganization under section 368,¹ the executors transferred the GIC stock and all of GIC's assets to HG and its subsidiaries.
Respondent asserts that the spinoff of Clinpath and the subsequent sale of Clinpath stock to NHL were, in reality, a prearranged sale by petitioner of its clinical business which failed to qualify as a reorganization under section 368 and a nontaxable distribution of stock to petitioner’s shareholders under section 355.
Respondent asserts that the spinoff of Clinpath and the subsequent sale of Clinpath stock to NHL were, in reality, a prearranged sale by petitioner of its clinical business which failed to qualify as a reorganization under section 368 and a nontaxable distribution of stock to petitioner’s shareholders under section 355.
- 80 - The Court of Appeals for the Ninth Circuit has held in a different context that 68 percent is not "substantially all" as that term is used in a predecessor of section 368 relating to corporate reorganizations.
ty and casualty (P&C) insurance). Acquisition of INA On March 31, 1982, the CG Group and INA Corp. (INA) and its over 160 affiliated companies (the INA Group) combined for - 4 - substantial business reasons by way of a tax-free reorganization under section 368. As the culmination of the reorganization, CIGNA was incorporated on March 31, 1982, as the holding company for the surviving affiliated business entities. In years prior to the combination of the CG and the INA Groups, INA and its affilia
General Rule.--No gain or loss shall be recognized if property is transferred to a corporation by one or more persons solely in exchange for stock or securities in such corporation and immediately after the exchange such person or persons are in control (as defined in section 368 (c) ) of the corporation.