THE STATUTE. Section 368(a)(1)(B) of the Code defines the term reorganization to mean the acquisition of the stock of a corporation (T) solely in exchange for voting stock of another corporation (P) if immediately after the transaction P controls T. Section 351 of the Internal Revenue Code provides that no gain or loss will be recognized if property is transferred to a corporation by one or more persons solely in exchange for stock of the transferee corporation provided that immediately after the exchange the person or persons who transferred the property are in control of the transferee. While neither the Code nor Internal Revenue Service regulations define the term "property," stock of a corporation undoubtedly satisfies the requirement. As defined in Section 368(c) of the Code, the term control means the ownership of stock possessing at least 80% of the total 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.
THE STATUTE. Section 368(a)(1)(B) of the Code defines the term reorganization to mean the acquisition of the stock of a corporation (T) solely in exchange for voting stock of another corporation (P) if immediately after the transaction P controls T. Section 351 of the Internal Revenue Code provides that no gain or loss will be recognized if property is transferred to a corporation by one or more persons solely in exchange for stock of the transferee corporation provided that immediately after the exchange the person or persons who transferred the property are in control of the transferee. While neither the Code nor Internal Revenue Service regulations define the term "property," stock of a corporation undoubtedly satisfies the requirement. As defined in Section 368(c) of the Code, the term control means the ownership of stock possessing at least 80% of the total 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. In Rev. Rul. 67-448, 1967-2 C.B. 144, the Internal Revenue Service (the "Service") determined that a transaction could constitute a reorganization within the meaning of Section 368(a)(1)(B) if a corporation, P, gained control of another corporation, T, solely in exchange for its voting stock through a merger of a newly-formed transitory subsidiary of P with and into T. The existence of the subsidiary and its merger into T are ignored for federal income tax purposes. The transaction is treated as a direct acquisition by P of the T stock solely in exchange for voting stock. This same principal applies to ignore the existence of the Subsidiary and treat the transaction as a transfer of property pursuant to Section 351. In Rev. Rul. 69-585, 1969-2 C.B. 56, the Service determined that both the control and solely for voting stock requirement of Section 368(a)(1)(B) were satisfied when P received 25% of the stock of T as a dividend from its wholly-owned subsidiary. The structure of the Mergers is consistent with the transaction described in Rev. Rul. 67-448. Companies formation of Merger Cos. will be accomplished solely to effectuate the Mergers. Except for minimal capital, the Merger Cos. will have no assets and will conduct no business activities. As a result of the Merger and Distribution, the Targets will become wholly-owned subsidiaries of Companies with its shareholders receiving solely voting common stock of Companies. Thus for federal income tax purposes, the Merger shoul...
