The continuity of business enterprise requirement: a field theory

Article Abstract:

IRS regulations, rulings and case law have failed to clearly define what portion of historic lines of business must be continued in corporate reorganizations to avoid characterization as a taxable liquidation under IRC section 368. Acquired corporations must be shown to maintain continuity of interest, continuity of business and valid business purpose. Regulations and rulings have focused on the percentage of the acquired corporation's lines of business that must continue. Thirty-three percent of historic business appears to be a safe harbor establishing continuity of business.

Liquidation

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Derivatives and continuity of interest: risk management raises new issues for reorganizations

Article Abstract:

The complex nature of derivative financial instruments dictates that the test for continuity of interest in the corporate reorganization context be revised. For corporate reorganizations to be tax-free, the corporation's owners must demonstrate continued ownership of the reorganizing entity. This test is based on distinctions between equity and debt. Derivatives, which have become popular as risk management tools, often cannot be characterized as simply equity instruments or simply debt instruments.

Analysis, Risk management, Derivatives (Financial instruments)

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The "plan" issue in the aftermath of Morris Trust repeal

Article Abstract:

Formal IRS guidance is necessary to resolve issues regarding the application of IRC section 355(e) which strictly limits Morris Trust corporate spinoff transactions. The statute operates to cause gain recognition on corporate distributions of ownership interests of 50% or more which are made according to a plan during a two-year time period. The meaning of plan should be clarified.

Tax Law, Public Finance Activities, Mergers & Acquisitions, Corporate divestiture, Divestiture

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