B the target corporation corp t here must liquidate

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But 50% may be good enough (Rev. Rul. 88-48)b)The Target corporation (Corp T here) MUST liquidateBusiness TBusiness AT shareholdersA shareholdersBeforeAfterFormer T shareholdersA shareholdersCorp ABusiness TBusiness ACorp A stockAssetsCorp A stock11
“C” ReorgCorp TCorp AC” reorg – Issues1.“boot relaxation” rule – required to acquire “control” using A voting stock:a)Which means can use up to 20% “boot” to acquire the assetsb)And liabilities don’t count as boot, but only if NO other boot is used!c)If other boot (i.e., cash) is used, then liabilities are boot, too!2.A acquires T for stock and then liquidates T = “C’ (not B” reorg)a)Rev. Rul. 67-2743.“creeping” C ok so long as not more than 20% of FMV of T’s assets acquired for cash & boot (raises “old & cold” issue)4.Also, “drop down” of assets by A into sub ok – see sec. 368(a)(2)(C)Business TBusiness AT shareholdersA shareholdersBeforeAfterFormer T shareholdersA shareholdersCorp ABusiness TBusiness ACorp A stockAssetsCorp A stock12
Nondivisive “D” ReorgCorp S1Corp S2Nondivisive “D” reorg – what happens1.Corp S1 transfers “substantially all” (90% of net assets, 70% of gross assets) of its assets to Corp S2, in exchange for Corp P stock, which Corp S1 then distributes in liquidation to its shareholders, AND transferor or its shareholders (ie Corp P) are in control of transferee (Corp S2)2.Same as a “C”, except for that transferor must control transferee right after3.A couple of special rules:a)No boot requirements – the “control” requirement (ie 50% ownership) handles the continuity of proprietary interest issue (can be all cash)b)The distributing corporation (Corp S1 here) MUST liquidateBusiness S1Business S2BeforeAfterCorp S2Business S1Business S2Corp P stockAssetsCorp P stockCorp PCorp P13
Forward Subsidiary MergersCorp TCorp SForward Subsidiary Merger – what happens1.Corp T merges into Corp S, using P stock, S is “survivor” – 368(a)(2)(D)2.Why is this done? It’s easy:
Business TBeforeAfterCorp SBusiness TAssetsCorp PCorp PCorp P stockCorp TstockFormer Corp T shareholders14
Forward Subsidiary MergersCorp TCorp SForward Subsidiary Merger – Issues1. Considerationa)can use up to 49.9% consideration other than Corp P stock (but shareholders taxable upon “boot” received, as we will see)i.Rule says this is a reorg “if” it would have qualified as an A (thus COPI and COBE must be met)b)S cannot use its own stock (only P stock can be used)c)“sub all” – Corp S must acquire “substantially all” Corp T’s assets (COBE)2. Commenta)Easiest and one of most popular reorg in practiceBusiness TBeforeAfterCorp SBusiness TAssetsCorp PCorp PCorp P stockCorp TstockFormer Corp T shareholders15

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