26-04-2012, 12:14 PM
Corporate Tax Planning
In today's ever-changing business world, a corporation often needs to reconstruct its form for economic survival and growth. These corporate divisions and combinations usually involve exchanges of stock and property, and normally would be taxable transactions. However, Congress enacted certain provisions that allow for non-recognition of gain or loss in certain types of corporate reorganizations to ensure that the tax laws would not impede corporate realignments.
This manual discusses the Patterns and requirements for non-taxable corporate reorganization. Greenstein, Rogoff, Olsen & Company can help Saving Tax in reconstructing your corporation.
Continuity of Business Enterprise
Reorganization is classified as a nontaxable transaction because it results in a continuation of the business in modified form. To ensure that the business is continued, the Regulations contain a continuity of business enterprise requirement. To meet this requirement the acquiring corporation must either continue the target corporation's historic business or use a significant portion of the target corporation's assets in a business.
Classification of Accepted Patterns of Reorganization
The seven acceptable patterns of reorganization may be classified into three categories: Acquisitive, Divisive, Re-capitalizing.
• Acquisitive reorganizations
Type "A," "B", "C," and acquisitive D, in which one Corporation acquires another corporation's stock, assets, or some combination of both.
• Divisive reorganization
Type D involves the division of one corporation into two or more corporations, and the original corporation may or may not exist afterwards.
• Re-capitalization and re-construction
"E"- A single corporation reconfigures its capital structure (e.g., issues stock to its shareholders in exchange for their bonds).
"F,"- A corporation merely changes its name or place of incorporation, or makes some other alteration in its form.
"G"- Liquidation through bankruptcy.