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Reorganization Definition of Control




This portion of the introduction to the basic principles of United States federal income taxation of corporate acquisitions is part of the Pillsbury Winthrop Shaw Pittman LLP Tax Page, a World Wide Web demonstration project. Comments are welcome on the design or content of this material.

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(c)

There are many different definitions of "control" in various parts of the Internal Revenue Code. For purposes of the reorganization and liquidation provisions, however, control of a corporation is defined as the ownership of:

    Stock possessing at least 80% of the combined voting power of all classes of stock entitled to vote

    and

    At least 80% of the total number of shares of all other classes of stock. This language has been interpreted to require ownership of at least 80% of the number of shares of each class of nonvoting stock.

Voting power is defined as the power to elect directors. The holder of 40% of the stock of a class entitled to elect six out of ten directors possesses 24% (0.4 x 6/10) of the voting power.

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