- Downstream merger a reorganization. A forward triangular merger is a different kind of merger that is described in IRC Section 368 (a) (2) (D). 3) But for the issue of whether the Downstream Merger satisfies the continuity of business enterprise requirement under Treas. Apr 20, 2004 · Issue 3: Filing Issues as Result of Downstream Merger in Directive 1 How should the Massachusetts S corporation formed as the result of the "F" reorganization described in Directive 1 above (formed as the result of the merger of a corporate trust parent into its QSUB) file a return and report income, gross receipts, property, payroll, sales and HOWEVER, if the merger is a re-incorporation so that the corporation effectively changes its domestic state, the merger will require an approval of stockholders and the merger is not considered to be a “short form” parent/subsidiary merger. Continuity of Shareholders’ Interest 1. (" Tilray " or " Company ") stockholders filed a class action and derivative complaint in the Delaware Court of Chancery asserting claims in connection with the merger in 2019 of Privateer Holdings, Inc. 2015-09, the IRS revoked a 37-year-old application of the step transaction doctrine to a stock transfer followed by an asset reorganization, or a “drop and sideways merger” transaction. Petrie Stores Nov 16, 2021 · One of the issues addressed in this ruling is whether the final downstream merger would qualify as a tax-free reorganization, given the deconsolidation of the original taxpayer’s consolidated filing group and the sale of a significant line of business. Provided the Downstream Merger qualifies as a statutory merger under applicable state law, the Downstream Merger will qualify as a reorganization under § 368 (a) (1) (A). The guidance comprises 170 pages and includes technical information on various topics. But Holdco would have had to distribute the stock of its two small subs before merging. The Parent Consolidated Group did not terminate at any time before the effective date of the Downstream Merger. Jan 26, 2024 · Tax free reorganization rules under §368—learn tests, 40 % stock requirement, and deal types (A-G) to defer gains and align rollover equity in your next M&A. Notice 2024-16 applies to transactions where a lower-tier CFC becomes a first-tier CFC and addresses the Section 961 basis consequences to its US shareholders. Reverse Triangle Merger Plus Liquidation 8. Generally, an ELA is eliminated when a solvent subsidiary whose stock has an ELA is liquidated or merged upstream into the parent corporation in a tax-free reorganization. Apr 6, 2023 · To qualify as a Type A reorganization, the transaction must satisfy all of the applicable merger or consolidation requirements under the corporation laws of the federal or state government. Jun 2, 2021 · Follows Tilray and Privateer Holding's 2019 downstream merger Derivative suit survives motions to dismiss (Reuters) - A group of investors can proceed with a lawsuit accusing Canadian cannabis Mar 7, 2023 · In February and March 2020, Tilray Brands, Inc. Acquisition Merger could not qualify as a reorganization under 368(a)(1)(A) and 368(a)(2)(E). " Jun 30, 2025 · A downstream merger, where a subsidiary acquires its parent company, is also considered a common control transaction because the ultimate control remains with the same source. Continuity of Business Interest F. Upstream Merger An upstream merger is a type of corporate merger or reorganization in which a subsidiary company merges into its parent company. 57-465, the IRS holds that a downstream merger pursuant to foreign law qualifies as Type D reorganization. Although the forward triangular reorganization rules require a merger that “would have qualified” as a Type A merger, the IRS has provided guidance that this qualifies as a Type A merger. 368 (a) (2) (E) reorganization. The following outline is intended to acquaint the reader with some of the more important income tax aspects of merger and acquisition transactions among corporations. The first type of D reorganization is a transfer by a corporation of substantially all of its assets to a controlled corporation followed by the complete Apr 1, 2010 · Later, in Rev. 90-95 (first-step QSP not integrated with subsequent upstream T-into-P merger where integrated transaction lacks adequate COI) and Rev. “Double tax” if a direct forward or forward triangular merger fails to qualify as a tax-free reorganization (see prior discussion) To avoid this result, consider structuring as two-step integrated reorganization transaction The transaction is an acquisition of 100% of Corp2's stock by Corp1 under a Section 338 (h) (10) election on 2/1/2020, followed by the downstream merger of Corp1 into Corp2. § 1. Payments Not in Consideration for Transferred Stock 2. 368 (a) (2) (E). A downstream merger serves as a powerful reorganization tool, enabling a parent entity to fold into its own subsidiary. Not covered by the DE Merger Regulations Does not qualify as a good reverse triangular merger under IRC § 368(a)(2)(E) Tested as a B reorganization What if a retroactive check-the-box election is made to treat DE as a corporation, effective for the time of the merger? Jun 2, 2012 · Final guidance on the Reorganization Tax Act, published by the German tax authorities on 2 January 2012, addresses issues related to the taxation of cross-border and domestic reorganizations. . Immediately after the transfer, the transferor corporation or its shareholders must be in control of the corporation to which the assets are transferred (Sec. (b) The Upstream Merger will qualify as a reorganization within the meaning of section 368 (a) (1) (A), a liquidation under section 332, or both. 57-465 (Downstream Merger of Foreign Corporation was a D Reorganization) Rev. 368-1(b) and (d), the Downstream Merger is a reorganization described in section 368(a)(1)(A) and will qualify as a reverse acquisition within the meaning of Treas. PLR 201122002 (Migration, "Uncheck" of DE & Downstream Merger into DE Treated as F Reorganization) PLR 201251003 (Deconsolidation Through Use of Foreign Subsidiary) Nov 25, 2008 · The Service has ruled that a downstream reorganization followed by a dissolution will qualify as a tax-free reorganization under section 368 (a) (1) (C). Reorganization followed by asset drop; directed transfers Suppose D2 acquires Dl's assets in a reorganization and then drops the Business B assets into D3, thereby splitting up the Business A and Business B assets. Corporation A, the parent, as a Constituent Entity, merges with and into its subsidiary, corporation B. Perhaps there were business reasons why Opco could not merge with Holdco. Part IV discusses the requirements for a tax-free reorganization and the structures that can be used in a reorganization. In the end, either entity in the transaction can be considered the survivor of the merger. 368-1 (b) and (d), the Downstream Merger is a reorganization described in section 368 (a) (1) (A). 772, describes the various aspects of the two basic types of transactions that qualify as reorganizations under §368 (a) (1) (D) (“D reorganizations”). Accounting for the Transaction Apr 7, 2012 · LTR 201214013 applies a 55 year old ruling to treat a subsidiary liquidation as a downstream D reorganization, thus preserving the basis in the liquidating subsidiary’s stock, which would not be A downstream merger is accounted for as if the parent acquired the shares of the subsidiary, regardless of the legal form of the transfer. Sep 2, 2005 · Our holding thus avoids the peculiar result of the Court of Federal Claims's judgment in this case that in one scenario, TMCH's downstream merger into Falconwood for an independent business purpose allows for the application of the step transaction doctrine to alter the associated tax consequences of the reorganization, whereas in another The tax con-sequences of the merger will be determined under Code Secs. GLOBAL TAX-FREE DEALS: MERGERS, ACQUISITIONS AND SPINS AT HOME AND ABROAD© May 27, 2011 · Downstream merger with nonresident shareholders Under the 2006 reorganization tax rules, downstream mergers generally are possible on a no gain/no loss basis. 38 Adjusted basis of the shareholders’ stock, accumulated adjustments account, and basis in assets would all stay the same. First, the general principles advanced in Rev. Dec 16, 2015 · (a) The Downstream Merger will qualify as a reorganization within the meaning of section 368 (a) (1) (A). The Court also concluded that the step transaction doctrine did not apply for this purpose. Economic Substance Doctrine E. downstream merger of Parent into Subsidiary is a candidate for qualifying as a reorganization under Section 368(a)(1)(A), 368(a)(1)(C) or 368(a)(1)(D). For example, the tax consequences of a transaction may vary significantly if one or more of the parties is a at holds the acquired assets after the second merger. Oct 29, 2003 · To qualify as a reorganization under section 368 (a) (1) (A) ("A" Reorganization), the transaction must be a statutory merger or consolidation "effected pursuant to the laws of the United States or a State or the District of Columbia. Section 368(a)(1)(A) defines a statutory merger or consolidation as a reorganization. 2001-46 merit applause. Jul 24, 2009 · (viii) Following the consummation of the Downstream Merger, Acquiring will cause the cancellation of the shares of Acquiring Class A common stock and Acquiring common stock received by MergerSub in the Downstream Merger. But for the issue of whether the Downstream Merger will satisfy the continuity of business enterprise requirement under Treas. The holding period of the new securities In that case, the taxpayer also argues that the tax consequences to Sub and Holdings are as follows: Holdings will not recognize any income, gain or loss in connection with the Downstream Merger. In a downstream merger, a partially owned subsidiary exchanges its common shares for the outstanding voting common shares of its parent. This technique was legitimized in 2000 when Seagate Technology completed a downstairs merger with and into Veritas Software, with the result that the discount at which Seagate’s stock was trading (to the value of Seagate’s stock in Veritas) was eliminated. The second step involved a downstream merger, in which the Company would Tilr this approach, the IRS would treat the share cancellation and subsequent stock issuance as a tax-free reorganization, allowing the Founders to avoid the tax consequences of a sale or Dec 8, 2023 · There are two variations of the short-term merger agreement: Most commonly, it’s considered “upstream” when a parent company acquires its subsidiary Far less commonly, it’s “downstream,” when a parent company is merged into a subsidiary. On appeal, the court concluded that the TMCH Group continued because the requirement that a chain of corporations “remain” following the downstream merger was satisfied during the 3 hours between the downstream merger and the sale of the stock of MFC and FSC. Jun 1, 2020 · When advising on a merger of LLCs, tax advisers must consider the application of state merger law, the continuity of the merged entities, and whether the merger constitutes an assets-over or assets-up transaction. In 1921, Congress defined a reorganization as including . As with any summary, most of the general statements which follow are subject to numerous exceptions and qualifications. Oct 1, 2010 · So instead it did a downstream merger into its QSub in an A reorganization. §§ 1. An efficient manner to transfer all of the business, assets and liabilities of LAVA and its subsidiaries is to first implement the Downstream Merger as part of the Post-Offer Reorganization. Alternatively, a subsidiary can be merged into another subsidiary of the consolidated group. In this Therein, the downstream merger of a holding company whose principal asset was the stock of its subsidiary corporation into its subsidiary was held to be a reorganization within the meaning of section 112 (g) (1) of the Revenue Act of 1934, predecessor to section 368 (a) (1) (A) of the Internal Revenue Code of 1954. 67-202 (Contribution & Liquidation Was An Asset Reorganization & Section 269 Did Not Apply) Feb 1, 2017 · Carrying over E&P from one entity to another and administrative burdens can lead to headaches down the road. 90- 95, the Acquisition Merger would be treated as a stock acquisition that is a qualified Mar 2, 2010 · The IRS has ruled that a statutory merger of a target corporation into its partially owned acquiring subsidiary will be a tax-free reorganization under section Nov 1, 2009 · The ability to use up to 20% boot is very helpful in a reverse triangular merger and is one reason why this type of reorganization is the more common form in a tax-deferred stock acquisition. Only one company may initiate such an F Reorganization, and only one company may result from the F Reorganization. R. At the time of this ruling, the merger of two foreign corporations could not qualify as a reorganization under section 368(a)(1)(A). 37 The IRS treated this transaction as an F reorganization. Corporation X, a widely held corporation engaged in the loan business, owned all of the stock of corporation Y which, in turn, owned all of the stock Apr 1, 2018 · Upstream C with a drop transactions An upstream C with a drop is a tax-free upstream Sec. What result, then, if a state-law merger is followed by a drop-down? Under the usual liquidation analysis, the parent would be viewed as reincorporating the buggy business in Sub’s alter ego. If the Acquisition Merger and the Upstream Merger in Situation (1) were treated as separate from each other, as were the steps in Situation (2) of Rev. Rul. Continuity of Interest 3. Mar 19, 2025 · Example: Essentially, there can be only two corporations going through an F Reorganization. Under an F-type (and therefore nontaxable) reorganization, one organization is treated as transferring assets to itself. Those claims were later consolidated and an amended consolidated Bloomberg Tax Portfolio, Corporate Acquisitions — D Reorganizations, No. qual to their aggregate basis in their securities. Part V discusses other issues that arise in both taxable and tax-free transactions. 368-2(b), which allows mergers under foreign law to qualify under section 368(a)(1)(A). 1. Three types of merger There are three types of merger: merger by absorption of wholly owned subsidiary (fusion av helägt dotterbolag) merger by absorption (fusion genom absorption Sep 2, 2005 · Plaintiff-appellant The Falconwood Corporation (“Falconwood”) appeals the ruling of the United States Court of Federal Claims on cross-motions for summary judgment that an affiliated group of corporations to which Falconwood belonged did not survive the “downstream merger” of a common parent corporation into its subsidiary corporation, Falconwood's predecessor, because there did not Jan 26, 2024 · Federal tax treatment of a merger or acquisition As defined in I. Sep 20, 2025 · Rev. 5 In the typical merger transaction, one corporation is absorbed into another corporation, with only the acquiring corporation surviving. Rev. Internal Revenue Code Section 338 (h) (10) Election D. See full list on corporatefinanceinstitute. 368-1(b) and (d), the Downstream Merger is a reorganization described in section 368(a)(1)(A). 332(a) and 337(a)—not the reorganization provisions. A tax-free reorganization or a merger is a type of corporate merger and acquisition that involves the purchase of the assets and liabilities of the target company by one acquiring May 1, 2019 · A Type D reorganization involves a transfer of assets between corporations. §368, a corporate reorganization is a term of art used for federal income tax purposes and encompasses various types of corporate transactions, including: Acquisitions of assets or stock of one corporation by another Readjustments of capital structure of a single corporation The division of a single corporation into two or May 22, 2024 · 6. 78-287 Advice has been requested whether the downstream merger of a first-tier subsidiary into its wholly owned subsidiary qualifies as a reorganization within the meaning of section 368 (a) (1) (F) of the Internal Revenue Code of 1954. Treas Regs. a merger or consolidation (including the acquisition Dec 16, 2015 · (a) The Downstream Merger will qualify as a reorganization within the meaning of section 368 (a) (1) (A). The downstream merger of a parent into a subsidiary will produce the same result. This transaction is not just a corporate reorganization; it’s a strategic shift with broad implications for shareholders, the stock market, and the companies' future directions. 37 If Parent is a holding company, the continuity of business enterprise test as applied to a holding company is brought to a head in view of the fact that the asset that Parent historically held May 16, 2000 · According to these commentators, treating such a merger as a statutory merger into the Owner qualifying as a reorganization under section 368 (a) (1) (A) does not inappropriately facilitate avoidance of any reorganization requirement under section 368. Dec 22, 2006 · The Service has ruled that a statutory merger of a target corporation into its partially owned acquiring subsidiary will be a tax-free reorganization, and that none Jun 30, 2017 · Downstream reorganizations The technique is just a variation on the downstream merger, which could have reached the same result. Accordingly, the merger of P with and into S2 qualifies as a reorganization under section 368(a)(1)(A) by reason of section 368(a)(2)(D) even though S1 and S2 were newly organized corporations and even though a related corporation was acquired in the transaction. Dec 16, 2021 · The rigid requirements for a Type B reorganization have placed considerable pressure on the definition of “voting stock. C. Plan of reorganization/merger agreement was filed with the state by client's attorney on 2/5/2020. 368-1 (b). If multiple entities are involved at either end of this process, the reorganization does not qualify as an F Reorganization. Instead of being purchased directly from the parent company in this reorganization, a target corporation is acquired by a parent company's subsidiary. . Part VI provides conclusions. Downstream reorganizations The technique is just a variation on the downstream merger, which could have reached the same result. Accordingly, the downstream merger of Y into Z qualified as a reorganization pursuant to section 368 (a) (1) (F) of the Code. In this arrangement, the subsidiary ceases to exist as a separate legal entity, and all of its assets and liabilities become part of the parent company. Jun 10, 2021 · P and H treated the merger as a tax-free reorganization within the meaning of IRC 368 (a) (1) (A). The same deemed direct reorganization treatment should apply to liquidations, upstream mergers into the acquirer, and sideways and downstream mergers, since the direction of the second step transaction does In Rev. 368(a)(1)(D)). The assets not reincorporated are left in the parent corporation’s hands. Sep 1, 2008 · The integrated transaction cannot qualify as a type A reorganization because P did not acquire T’s assets and liabilities in a transaction qualifying as a merger under applicable state law, and the immediate liquidation of T causes the transaction to fail to meet the “substantially all” requirements of Sec. downstream section 368 reorganization, in which Sub inherits the Target attributes and Target and Parent recognize gain on the assets that are distributed to Parent in the liquidation? Or is this a section 351 exchange of Target assets for Sub stock followed by an upstream section 368 Feb 10, 2022 · Corporate reorganization Downstream recapitalization Forward triangular merger M&A lawyer Parent company meaning Statutory merger Stock-for-asset exchange Stock-for-stock exchange Subsidiary meaning Upstream recapitalization Tax lawyer What is a spin off What is a split off What is a transfer What is an acquisition What is an assignment What is Oct 1, 2015 · IRS rules expand the range of transactions that qualify as type D acquisitive asset reorganizations and signaled a greater willingness to accept a taxpayer’s chosen form of reorganization transaction. Nov 19, 2021 · If the various requirements are satisfied, the merger would qualify as a forward triangular reorganization. Apr 6, 2012 · Aside from the Downstream Merger, Target Parent has no plan or intention to sell or otherwise dispose of any of the assets of Parent acquired in the Parent Reorganization, except for dispositions made in the ordinary course of business or transfers described in section 368(a)(2)(C) or Treas. STATUTORY MERGERS, COMBINATIONS, & REORGANIZATIONS There is a significant difference between a statutory merger under the Internal Revenue Code (“IRC” or “the Code”), and the countless possibilities along the merger and acquisition spectrum that may not fall, technically, under the IRS’s definition of a merger, consolidation, reorganization, or tax-free exchange. For federal income tax purposes, the Downstream Merger of Target into MergerSub will be treated as the transfer of Target's assets and liabilities to Acquiring. com As part of the reorganization, TMCH merged downstream into Falconwood. A downstream merger is another example of a common-control transaction. For this reason, it Aug 30, 2013 · The Downstream Merger will qualify as a reorganization within the meaning of § 368 (a) (1) (A). Dec 17, 2021 · A reverse triangular merger qualifies as a tax-free reorganization under Internal Revenue Code Section 368 (a) (2)9E) if the following requirements are satisfied: The ruling held that the 3 steps were treated as a reorganization within the meaning of section 368(a)(1)(F). This is the opposite of a downstream merger, where a parent company merges into a subsidiary DISCUSSION: The purpose of the reorganization provisions of the Code is to provide tax-free treatment to certain exchanges incident to readjustments of corporate structures made in one of the specified ways described in the Code. In this article, we will discuss C-, D-, E-, and F-reorganizations. Apr 1, 2018 · Upstream C with a drop transactions An upstream C with a drop is a tax-free upstream section 368 (a) (1) (C) reorganization of a subsidiary's assets (an upstream C), followed by a tax-free contribution of some of the subsidiary's assets to a new corporation (a drop). The ruling’s approach, in-tegrating related acquisition steps to find an encom-passing reorganization, sensibly resolves the uncer-tainty and tension between Rev. Aug 7, 2024 · Learn about the different types of mergers and acquisitions including horizontal, vertical, and more categories of acquisition from the experts at CT Corporation. Certificate or Articles of Merger for each jurisdiction. 1502-75(d)(3). Each of Target and Acquiring will be a "party to the A transferee company (ett övertagande företag) absorbs the assets and liabilities of a transferor company (ett överlåtande företag), which dissolves without going into liquidation when the merger is complete. 368 (a) (1) (C) reorganization of a subsidiary’s assets (an upstream C), followed by a tax-free contribution of some of the subsidiary’s assets to a new corporation (a drop). with and into a wholly owned subsidiary of Tilray (the " Downstream Merger "). This downstream merger was necessitated by Falconwood’s unique assets. However, unlike a B reorganization (or other stock acquisition), any earnings and profits or other tax attributes of Newco (T prior to the step 1 F reorganization) will transfer to P (see Sec. 381 (c)). Feb 26, 2020 · F-Type Reorganizations Defined F-type reorganizations are often used in mergers or acquisitions. May 11, 2015 · In Rev. However, now see Reg. It held seats on various commodities exchanges and the downstream merger avoided the risk and delay incident to obtaining approval of a transfer of those seats from Falconwood to TMCH. Distributing1 and Distributing2 will each be a "party to a reorganization" within the meaning of § 368 (b). Downstream Mergers— In a Downstream Merger, the opposite occurs. But for the issue of whether the Downstream Merger satisfies the continuity of business enterprise requirement under Treas. Whether such a downstream merger would be possible in a tax neutral way if the parent company had nonresident shareholders has been controversial since the Reorganization Tax Act was amended. 368-2(k). Section 1. Held: In order for a merger to be a tax-free reorganization within the meaning of IRC 368 (a) (1) (A), there must be continuity of the business enterprise of the acquired corporation. May 17, 2010 · Thus, it would appear that a downstream merger would be effective in this case. Reverse Triangle Merger Plus Downstream Merger 7. Section 362 provides that the basis of property acquired by a corporation in connection with a reorganization, will be the same as the basis in the hands of the transferor. During a traditional (and therefore taxable) merger or acquisition, one organization is treated as transferring assets to another. Reorganizations followed by asset dropdowns (as distinguished from reorganizations vidends) avoid the twin disadvantages Aug 27, 1998 · /12/ While the direction of a merger may determine whether other requirements for reorganization treatment, such as the type of stock that must be issued, are satisfied, it has generally not been the case that whether a transaction constitutes a "statutory merger" in the first place turns on which entity is the survivor in the transaction. 75-561 is amplified. The assets not reincorporated are left in the parent corporation's hands. 2001-26 These two businesses might merge in terms of corporate structure to form a new corporation. For divisive D reorganizations, control means Feb 10, 2022 · Corporate reorganization Downstream recapitalization Forward triangular merger M&A lawyer Parent company meaning Statutory merger Stock-for-asset exchange Stock-for-stock exchange Subsidiary meaning Upstream recapitalization Tax lawyer What is a spin off What is a split off What is a transfer What is an acquisition What is an assignment What is Sep 2, 2005 · Our holding thus avoids the peculiar result of the Court of Federal Claims's judgment in this case that in one scenario, TMCH's downstream merger into Falconwood for an independent business purpose allows for the application of the step transaction doctrine to alter the associated tax consequences of the reorganization, whereas in another Sep 3, 2024 · The upcoming split-off transaction between Liberty Media Corporation and Sirius XM Holdings has garnered significant attention, marking a pivotal restructuring move in the media and entertainment industry. 368-1(b) of the Income Tax Regulations. (c) The effects of the Year 1 Distribution have not previously been reflected on the Sub1 Group's consolidated return or the Parent Group's Feb 5, 2021 · leaving Tilray stock as Privateer’s only asset. 2. Reg. 2001-46, the IRS addressed the ramifications of both (1) an upstream merger following an otherwise qualifying QSP and (2) an upstream merger following an otherwise tax-free Sec. Beyond the immediate structural benefits, businesses undertaking such a merger must address legal, regulatory, and tax planning complexities to protect corporate value and ensure a smooth transition. Tags Corporate Reorganizations C-reorganization D-reorganization E-reorganization F-reorganization Meaningless Gesture Doctrine Substantially All Voting Stock In Part I of this series,1 we discussed A- and B-reorganizations. A Reorganization With a Drop (But Drop Precedes Merger) Initial Structure Downstream Transfer Apr 1, 2010 · Following the step 2 merger, the parties end up in a position almost identical to what would have transpired in a direct stock acquisition. FSub 1 and FSub 2 each was “a party to a reorganization” within the meaning of section 368(b). sf0wpcyk r2ro ibz xwxv 9f7sv8 tmqv rbxad8 q5iypo ko5 k88t
