Transactions subsequent to a "B" reorganization.

• Author: Bloom, Gilbert D.

Inconjunction with a "B" reorganization, the acquiring corporation or the target corporation's shareholders may undertake a transaction or a step that is considered part of the overall plan of reorganization. Listed below are 20 such transactions that may occur for business or economic reasons and the tax effect of each transaction on the qualification of the "B" reorganization.

In each instance, assume that the subsequent transaction (whether it takes place six days or six months after the "B" reorganization) is "part of the plan." No attempt is made to determine what is "part of a plan" or even what standard (end-result test, binding commitment test or independent significance test) should be applied in making that determination. Rather, the subsequent step is analyzed as if it took place contemporaneously with the reorganization and would be treated by the IRS as part of the overall plan. Similarly, assume that the shareholders of the target or the acquiring corporation, acting unilaterally, can cause their step (event) to be treated as part of the overall plan of reorganization.

The list below assumes that only one of the enumerated events take' place. In other words, each event is mutually exclusive of any other event; one should not extract the proposition that two events are innocuous because each event analyzed separately is innocuous.

In each situation, the acquiring corporation (AC) has just acquired, solely for its voting stock, all of the outstanding stock of the target corporation (T), a previously unrelated C corporation. Every shareholder of T is an individual. S is an existing wholly owned subsidiary of AC and S1 is a wholly owned subsidiary of S. All corporations and shareholders are U.S. persons. AC may or may not file a consolidated return. The comments below relate solely to the continuing validity of the "B" reorganization.

Subsequent Events Undertaken at the Behest of the Acquiring Corporation

1. T merges into AC: A "B" reorganization followed by an upstream merger (pursuant to state or Federal law) of T into the acquiring parent corporation (AC) is treated as a direct merger of T into AC. As a result, the transaction is not a "B" reorganization, but instead is a qualifying "A" merger. A transaction that would meet the qualifications of a "B" reorganization would automatically meet the qualifications of an "A" reorganization.

2. T liquidates into AC: The liquidation of T (other than via a state or Federal merger statute)...