Tax Analysts provides news, analysis, and commentary on tax-related topics, including on mergers, acquisitions, and corporate reorganizations.

In some instances, reorganizations may be done tax free without recognition of gain. Section 368 has definitions related to corporation reorganizations, including mergers or consolidations, acquisitions (M&A), transfers by a corporation of all or part of its assets to another, recapitalization. Section 367, for foreign corporations, states that in connection with any exchange described under section 332 for liquidations of subsidiaries, 351 for transfer to a corporation controlled by transferor, 354 for exchanges of stock and securities, or 361 for non-recognition of gain or loss to corporations, a U.S. person who transfers property to a foreign corporation will not be considered a corporation for purposes of determining gain recognition.

Recurring issues and controversies in this area, and specifically cross-border M&A, include inversions under section 7874, where a U.S. resident company acquires or merges with a smaller foreign-based company in order to change its place of incorporation and escape U.S. taxation, and Killer B reorganizations to achieve tax-free repatriations. Some reorganizations, like spin-offs may necessitate an examination of the step transaction doctrine. The economic substance doctrine, recently codified under section 7701(o), which requires a transaction to change a taxpayer’s economic position (objective prong) and have a substantial business purpose (subjective prong), is another relevant area. In some circumstances, the IRS may recast a transaction and impose additional tax.