The information presented is only of a general nature, intended simply as background material, is current only as of the latest revision date, October 15, 2007, omits many details and special rules and cannot be regarded as legal or tax advice.

Internal Revenue Code § 368(a)(1)(C)

C Reorganization Diagram

Step 1: Asset-Stock Exchange

Step 2: Stock Distribution

Post-Transaction Structure

Acquiring must acquire substantially all of Target's assets in exchange solely for voting stock of Acquiring.

The assumption by Acquiring of Target's liabilities is not considered to give rise to the receipt by Target of consideration other than Acquiring voting stock.

Under a special rule, up to 20% of the consideration for Target's assets can be property other than Acquiring (or Parent) voting stock, but for purposes of this rule, the assumption of Target's liabilities is treated as the receipt by Target of other property. In most cases, therefore, the effective limitation on property other than voting stock is far less than 20%.

Target must ordinarily liquidate.

Acquiring can contribute the acquired Target assets to a subsidiary controlled by Acquiring.

In a triangular C reorganization stock of a corporation ("Parent") in control of Acquiring may be transferred to Target as consideration for Target's transfer of assets to Acquiring (provided the other C reorganization requirements are satisfied), but a combination of Parent and Acquiring voting stock is not permitted.

Triangular C Reorganization Diagram

Step 1: Asset-Stock Exchange

Step 2: Stock Distribution

Post-Transaction Structure

© 2007