Letter ruling consistent with regs. repealing Bausch & Lomb doctrine.

• Author: Tapajna, Joseph J.
• Position: IRS Letter Ruling 200030015

In Letter Ruling 200030015, the IRS ruled that the merger of a subsidiary into one of its shareholders would be treated as a tax-free C reorganization. In the ruling, the acquirer was a shareholder in a target corporation. Pursuant to a plan of merger, all the target shareholders exchanged their target stock for the acquirer's voting common stock. The target then dissolved. The Service viewed the transaction as if the target had transferred substantially all of its assets to the acquirer, solely in exchange for the acquirer's voting stock, and distributed the voting stock to its shareholders in complete liquidation.

Letter Ruling 200030015 is in line with recently issued regulations providing that, for transactions after 1999, the Service has abandoned its Bausch & Lomb step-transaction analysis of C reorganizations; see Regs. Sec. 1.3682(d)(4). The Bausch & Lomb doctrine applied when an acquirer with an "old and cold" interest in a target's stock acquired the target's assets in exchange for the acquirer's stock, followed by the target liquidating and distributing the acquirer's...