With minor exceptions beyond our scope before after

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With minor exceptions beyond our scopeBeforeAfterCorp YCorp YdebtCorp YstockDebt24
“F” ReorgCorp Y(CA)“F” reorg (368(a)(1)(F)) – what happens1.Simple – Corp Y changes its state of incorporation from California to Delaware2.This is a single entity reorg3.Under sec. 368(a)(1)(F), the transaction should be tax-free to the former Corp Y debt-holders and to Corp Ya)Even if there are two entities for a bit, as state law sometimes requires – if the overall result is just moving one entity from one state to another, it is an F reorg (see Rev. Rul. 96-29)b)should be tax-free F reorgBeforeAfterCorp Y(DE)25
“G” ReorgCorp XCorp Y“G” reorg – what happens1.Corp X transfers its assets to Corp Y, in exchange for Corp Y stock, which Corp X then distributes in liquidation to its shareholders or creditors, and EITHER Corp X or Corp Y is in bankruptcy or similar case2.AND the transaction is done under court supervision3.A couple of special rules:a)Must meet only continuity of proprietary interest (but all creditors count for this purpose)b)Most flexible reorg (flexible on “sub all” too)Business XBusiness YX s/h & creditorsY shareholdersBeforeAfterFormer X s/h & creditorsY shareholdersCorp YBusiness XBusiness YCorp Y stockAssetsCorp Y stock26
“G” ReorgCorp XCorp Y“G” reorg – tax consequences1.No gain or loss to Corp X or Corp Y (asset basis carries over)a.No COD to X or Y on discharge of debt (108 – in bankruptcy)2.Shareholder level:a)Shareholders & “security” holders get tax free treatment on receipt of Y stock (but pay tax on any boot received, like normal)b)Short term creditors are taxable on receipt of stock if in excess of basis in their obligation from Corp X Business XBusiness YX s/h & creditorsY shareholdersBeforeAfterFormer X s/h & creditorsY shareholdersCorp YBusiness XBusiness YCorp Y stockAssetsCorp Y stock27
Shareholder Reorg Treatment1.Shareholder treatment – sec. 354a)Exchange of “stock or securities” in one “party” to a sec. 368 reorg for stock or securities in another party to the reorg is tax free to the shareholdersi.“security” = long term corporate debtii.Sec. 356(d) – gain if principal amt of securities rec’d > principal amount of securities surrendered = bootb)Just like in sec. 351, if boot (ie something other than stock or securities in a party to the reorg) is received, then you have recognition of the lesser of the gain realized on the transaction or the FMV of the boot receivedc)The boot is either capital gain or dividend depending upon the rules of sec. 302 – See sec. 356(a)(2)i.Clark – treat as if all stock received, and then some stock redeemed for the boot – would it qualify for 302? If so, then gain; otherwise a dividendii.And not that important now – whether gain or dividend, it is likely taxed at 15%, and in either case it is just the GAIN that is taxed (see 356(a)(2), next slide)iii.

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