Tax Study Problem

LESSON 9

INTRODUCTION TO CORPORATE REORGANIZATIONS

[Note: This lesson should be considered optional in all courses.] GENERAL COMMENTS: Teachers will have widely varying preferences about whether and how to introduce reorganizations and how extensive the coverage of this complex subject should be. The suggested aim of this lesson is to acquaint the student with (1) the sorts of exchanges that can be classified as reorganizations; (2) the general issues surrounding the area; and (3) the statutory mechanics of what happens to whom and when. Those of you who want (or need because of time constraints) to give the reorganizations topic a lighter touch may choose to use this lesson, together with Lessons 10 and 11 on Types A, B, and C reorganizations, as your “coverage package” for this topic.

As a vehicle for illustrating why reorganization is an identifiable event that should be exempt from § 1001(c) (but burdened with the carryover basis corollary), consider discussing the two Gregory opinions. While Gregory involves step transactions and business purpose/tax avoidance issues, it also contrasts the cash-out transaction to the reorganization. Consider an overview of the typical fact patterns in the current statutory parsings of reorganization (and the related animal, § 355), §§ 368(a)(1)(A) through 368(a)(1)(G); B&E ¶¶ 12.02, 12.20.

Under the heading of ancillary matters, consider discussing generally (1) the “soft” doctrines that overlay the statute–STD, business purpose, business continuity, continuity of proprietary interest (which is dealt with in depth in Lesson 11, Part A); and (2) “comfort rulings” (now unavailable in many reorganization areas) and ruling guidelines. B&E ¶¶ 12.01, 12.03, 12.21, 12.61. (1) Section 1031(a)(2)(B) has always excluded stock swaps. A Type B reorganization, however, could work. An installment sale can be a surrogate for a reorganization, but “readily tradeable debt” does not qualify for deferral. IRC § 453(f)(4). Y may not be willing to give $150,000 in stock value for the land or T stock in a reorganization because of the carryover basis corollary and the build-in gain in the land.