General Rules for Corporate Reorganization

Line,Of,Blocks,With,Employees.,Building,A,Business,Team,From

General Rules for Corporate Reorganization

In order for a transaction to be given non-recognition treatment under the reorganization provisions, it must meet certain requirements.

• The reorganization must meet certain tests in the Regulations regarding “continuity of interest” and “continuity of business enterprise.”

• The reorganization must be conducted according to one of seven patterns eligible for non-recognition.

• The reorganization must meet the judicially imposed condition requiring a “business purpose” for the transaction

• A plan of reorganization must exist and be adopted by each corporation involved in the transaction.

Continuity of Interest

Continuity of interest means that the shareholders retain a substantial proprietary interest in the continuing business. This concept was first developed by the court in Cortland Specialty Co. I, and is now contained in the Regulations:

1. The purpose of the continuity of interest requirement is to prevent transactions that resemble sales from qualifying for non-recognition of gain or loss available to corporate reorganizations. Continuity of interest requires that in substance a substantial part of the value of the proprietary interests in the target corporation be preserved in the reorganization.’

2. To qualify for favorable treatment, the consideration package must contain stock of the acquiring corporation so that the target’s shareholders have an equity interest in the acquiring corporation. The IRS has indicated that for ruling purposes, at least 50 percent of the consideration should be stock of the acquiring corporation. This does not mean half of what each shareholder receives must be stock. Instead, the test is applied to the target’s shareholders as a group. As a result, an acquiring corporation has great flexibility in designing the package of consideration that the target’s owners will receive.

Continuity of Business Enterprise

Reorganization is classified as a nontaxable transaction because it results in a continuation of the business in modified form. To ensure that the business is continued, the Regulations contain a continuity of business enterprise requirement. To meet this requirement the acquiring corporation must either continue the target corporation’s historic business or use a significant portion of the target corporation’s assets in a business.

Proceed to Accepted Patterns for Corporate Reorganization

We hope you found this article about “General Rules for Corporate Reorganization” helpful.  If you have questions or need expert tax or family office advice that’s refreshingly objective (we never sell investments), please contact us or visit our Family office page  or our website at www.GROCO.com.

To receive our free newsletter, contact us here.

Subscribe our YouTube Channel for more updates.

Alan Olsen, CPA

Alan Olsen, is the Host of the American Dreams Show and the Managing Partner of GROCO.com.  GROCO is a premier family office and tax advisory firm located in the San Francisco Bay area serving clients all over the world.

Alan L. Olsen, CPA, Wikipedia Bio

 

 

GROCO.com is a proud sponsor of The American Dreams Show.

 

American-Dreams-Show-Accounting-firm-in-ca-cpa-tax-advisors-groco-alan-olsen

The American Dreams show was the brainchild of Alan Olsen, CPA, MBA. It was originally created to fill a specific need; often inexperienced entrepreneurs lacked basic information about raising capital and how to successfully start a business.

Alan sincerely wanted to respond to the many requests from aspiring entrepreneurs asking for the information and introductions they needed. But he had to find a way to help in which his venture capital clients and friends would not mind.

The American Dreams show became the solution, first as a radio show and now with YouTube videos as well. Always respectful of interview guest’s time, he’s able to give access to individuals information and inspiration previously inaccessible to the first-time entrepreneurs who need it most.

They can listen to venture capitalists and successful business people explain first-hand, how they got to where they are, how to start a company, how to overcome challenges, how they see the future evolving, opportunities, work-life balance and so much more..

American Dreams discusses many topics from some of the world’s most successful individuals about their secrets to life’s success. Topics from guest have included:

Creating purpose in life / Building a foundation for their life / Solving problems / Finding fulfillment through philanthropy and service / Becoming self-reliant / Enhancing effective leadership / Balancing family and work…

Untitled_Artwork copy 4

MyPaths.com (Also sponsored by GROCO) provides free access to content and world-class entrepreneurs, influencers and thought leaders’ personal success stories. To help you find your path in life to true, sustainable success & happiness.  It’s mission statement:

In an increasingly complex and difficult world, we hope to help you find your personal path in life and build a strong foundation by learning how others found success and happiness. True and sustainable success and happiness are different for each one of us but possible, often despite significant challenges.

Our mission at MyPaths.com is to provide resources and firsthand accounts of how others found their paths in life, so you can do the same.

Posted in

How to Find the Right Investment Advisor

Are you looking to invest? Perhaps you just want some help with your financial planning or even your estate planning. Finding someone that can truly help you is difficult sometimes, simply because there are so many options to choose from. The Internet is full of so-called experts that can help you make wise investments and…

What’s the Deal With U.S. Corporate Taxes?

What’s the Deal With U.S. Corporate Taxes?

What’s the Deal With U.S. Corporate Taxes? There has been a lot of back-and-forth amongst lawmakers and political pundits in the media lately regarding U.S. companies switching their addresses to foreign locations in order to avoid corporate taxes. One side claims that there is nothing wrong with such deals, while many democratic lawmakers, including President…

Is the Government Going to Tax You for Using the Internet?

Is the Government Going to Tax You for Using the Internet? Taxes, taxes and more taxes: that appears to be the government’s answer for just about every problem we face in society. There seems to be no end to the list of things that the government wants to tax. Now it seems that Americans could…

Expecting An Audit? Expect to Wait

Expecting An Audit? Expect to Wait

Expecting An Audit? Expect to Wait Have you ever been audited by the IRS? Have you been told that you might be audited soon? Are you waiting to be audited right now? If you answered yes to any of these questions, then chances are you have either played the waiting game or you’re playing it…