Are F reorganizations tax free?
The F Reorganization enables restructuring to be done on a tax-free basis and it can be very valuable in pre-transaction planning. For any questions regarding F Reorganizations and other tax restructuring transactions, any attorney with Frost Brown Todd’s Tax Practice. [1] I.R.C. § 368(a)(1)(F).
How does an F reorg work?
The F reorganization allows: (1) a step-up in tax basis of the target’s assets for the purchase portion of the transaction (even if under 80%); (2) the same treatment to sellers under a Sec.
Can an S corp do a tax free reorganization?
Tax-free reorganizations only apply to C-Corporations and S-Corporations, and the seller must predominantly receive stock, rather than cash. The amount of cash you can receive is determined by which reorganization structure you implement.
How does a tax free reorganization work?
A target shareholder who receives boot in a type A reorganization recognizes gain to the extent of the lesser of the boot or the gain realized upon the exchange of the stock. If other shareholders do not receive boot, they do not recognize gain. Thus, the transaction is still termed tax-free.
Can a C corp do an F reorg?
While F reorganizations can also be used with C corporations, an F reorganization is particularly well suited for a variety of transactions involving S corporations. All section references herein, other than to Regulations, are to the Internal Revenue Code of 1986, as amended.
Do you need a business purpose for an F reorganization?
As with any Sec. 368(a) reorganization, the F reorganizations in the examples above must have a valid business purpose and satisfy additional judicial doctrines such as economic substance.
What are the tax consequences of a corporate reorganization?
If a transaction qualifies as a “reorganization,” it is generally tax free both to the shareholders and to the corporation. However, to the extent non-stock consider- ation (such as cash or other property, often referred to as “boot”) is received, gain is generally recognized.
What are the requirements for a corporation to qualify as a tax free reorganization?
To qualify as a tax-free reorganization, stock of the buyer (or buyer’s affiliate) generally must be used as a significant portion of the consideration (varying from about 40% to 100% of the consideration, depending on the type of tax-free reorganization) and, in certain tax-free reorganizations, the stock must be …
How do I qualify for tax free reorganization?
What are the requirements for an A reorganization?
A Type A reorganization must fulfill the continuity of interests requirement. That is, the shareholders in the acquired company must receive enough stock in the acquiring firm that they have a continuing financial interest in the buyer.
Can an LLC do an F reorganization?
A company might also undergo an F reorganization, convert from an S corporation to a single member LLC, and then contribute the single member LLC interest to a new C corporation.
What does F reorg mean?
An “F” reorganization is a type of tax-free reorganization under Internal Revenue Code Section 368(a)(1)(F), which includes a mere change in identity or form of one corporation. F reorganizations are typically used to effectuate a tax-free shift of a single operating company.
What are the requirements for a corporation to qualify as a tax-free reorganization?
What are the general requirements for a tax free corporate separation?
Under Section 355, there are four major requirements for a spinoff to qualify as tax-free: control, device, active trade or business, and distribution.
What is an A reorg?
A Type A reorganization allows the buyer to use either voting stock or nonvoting stock, common stock or preferred stock, or even other securities.
Is a name change an F reorg?
As indicated in Sec. 368, an F reorganization may be effected by changing the identity, form, or place of organization of a corporation. Thus, a change in the name of a corporation could qualify as an F reorganization.
Can you have boot in AB reorg?
Section 368(a)(1)(B) usually precludes all forms of boot in a B reorganization, however, and renders § 356(a)(1) inapplicable to stock-for-stock exchanges. See note 13 infra. Thus, the presence of boot in a B reorganization disqualifies the entire transaction from nonrecognition.
How do you split a corporation?
A split-off involves the shareholders of the Distributing Corporation exchanging part or all of their Distributing Corporation shares for Controlled Corporation shares. In a split-off, some shareholders of the Distributing Corporation may elect to partici- pate in the split-off and others may not.
What qualifies as a tax-free spin-off?
A tax-free spinoff is when a corporation carves out and separates part of its business as a new standalone entity, but the separation does not subject the parent firm to paying taxes.
What is Type B reorganization?
A Type “B” reorganization is a stock-for-stock transaction in which one corporation (the acquiring corporation) acquires the stock of another corporation (the target corporation). Only voting stock of the acquiring corporation or its parent may be used in the acquisition.
Do I need a new EIN in an F reorganization?
Rev. The previously assigned EIN should be used by the surviving corporation in a statutory merger and in a reincorporation qualifying as an F reorganization. A new EIN should be requested by the new corporation in a consolidation and in any reincorporation transaction not qualifying as an F reorganization.
Can an LLC be a QSSS?
The new LLC then files a QSUB Election to have the existing LLC treated as a Qualified Subchapter S Subsidiary, (hereinafter “QSUB”). As a result of the above, the new LLC and the old LLC will be treated as a single entity for federal income tax purposes.
What is considered a tax free asset?
Of those items that the IRC delineates as not taxable (or tax-exempt), inheritances, child support payments, welfare payments, manufacturer rebates, and adoption expense reimbursements are generally not taxed.
How to manage a tax-free reorganization?
Managing a tax-free reorganization is entirely dependent on the tax jurisdiction a company is in. A tax-free reorganization is done not necessarily to grant a tax exemption and thereby put the company in a better position. It is done to reduce any tax consequences of an already impending reorganization.
What are the tax implications of the reorganisation of a company?
The reorganisation could give rise to tax liabilities in respect of stamp duty on the transfer of shares, stamp duty land tax on the transfer of any property, VAT, and corporation tax on any income generated. It could also lead to the loss of tax reliefs.
Are taxpayers entitled to nonrecognition treatment on a reorganization exchange?
Taxpayers are entitled to nonrecognition treatment on a reorganization exchange since they are viewed as continuing their investment in the old, albeit modified, corporate enterprise. If investors remain invested in the modified corporate enterprise, the logic is that the transaction should not trigger immediate recognition of gain or loss.
Where can I get advice on reorganisation of my company’s corporate structure?
For practical and commercial advice in respect of the reorganisation of your company’s corporate structure, please contact Teri Hunter on t: 01628 470 004 or e: [email protected].