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.