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Generally Applicable
Reorganization Requirements




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.

In order for an acquisition of a target corporation ("Target") by an acquiring corporation ("Acquiring") to constitute a tax-free reorganization, certain basic conditions must be satisfied, irrespective of the form of the transaction.

    Continuity of proprietary interest requires the shareholders of Target to retain some element of equity participation in the surviving or continuing enterprise.

    Continuity of business enterprise.

      Acquiring must continue at least one significant line of Target's historic business

      or

      Acquiring must use a significant portion of Target's historic business assets in a business.

In addition, it is often necessary for one corporation to be in control of another corporation. Control is specifically defined for purposes of the corporate reorganization and liquidation provisions of the Internal Revenue Code.

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