Taxation

Corporate Reorganizations Under the Internal Revenue Code

At Vanguard Legal, we guide businesses in Houston and Dallas through the complexities of corporate reorganizations with precision and strategic insight. Whether you’re restructuring for growth, streamlining operations, or preparing for a merger or acquisition, understanding the types of corporate reorganizations recognized under the Internal Revenue Code (IRC) is essential for achieving tax-efficient outcomes.

What Is a Corporate Reorganization?

A corporate reorganization is a restructuring of a corporation’s legal, operational, or ownership structure that qualifies for tax-deferred treatment under IRC §368. These reorganizations are designed to facilitate business continuity while minimizing immediate tax consequences. To qualify, the transaction must meet specific statutory and judicial requirements, including continuity of interest, continuity of business enterprise, and a bona fide business purpose.

Types of Corporate Reorganizations

The IRC outlines several types of tax-deferred reorganizations, each with distinct structural and legal requirements. Below is a summary of the most common types:

Type	Description	Key Requirements
Type A – Merger or Consolidation	Statutory merger or consolidation under state law	– Must be pursuant to state law; Continuity of interest (at least 40% equity); Continuity of business enterprise; Bona fide business purpose
Type B – Stock-for-Stock Exchange	Acquisition of target stock solely in exchange for voting stock	– Acquirer must use only voting stock; Must acquire control (≥80% of voting stock); No boot (cash or other property) allowed
Type C – Stock-for-Assets Exchange	Acquisition of substantially all assets in exchange for voting stock	– Substantially all assets (≥70% gross, ≥90% net); Voting stock must be primary consideration; Target must liquidate post-transaction
Type D – Transfer of Assets	Transfer of assets between corporations under common control	– Control requirement (≥50% ownership); Must be part of a divisive or acquisitive reorganization; Continuity of interest and business enterprise
Type E – Recapitalization	Restructuring of a corporation’s capital structure	– Must involve changes in equity or debt instruments; No change in corporate identity or operations required
Type F – Change in Identity, Form, or Place of Organization	Simple change in corporate structure	– Must be a mere change in identity, form, or place of incorporation; No substantive change in ownership or operations
Type G – Bankruptcy Reorganization	Court-approved reorganization under Title 11	– Must be pursuant to a confirmed bankruptcy plan; Must meet continuity and business purpose requirements

Key Doctrines for Qualification

To qualify for tax-deferred treatment, reorganizations must satisfy several judicially developed doctrines:

Continuity of Interest (COI): Shareholders of the target must retain a substantial interest in the acquiring entity.
Continuity of Business Enterprise (COBE): The acquiring corporation must continue a significant portion of the target’s business.
Business Purpose Doctrine: The reorganization must serve a legitimate business purpose beyond tax avoidance.

Strategic Legal Guidance in Texas

Navigating the nuances of IRC §368 reorganizations requires experienced legal counsel. Vanguard Legal offers tailored corporate structuring services to businesses across Houston and Dallas, ensuring compliance with federal tax law while optimizing strategic outcomes. Whether you’re pursuing a merger, spin-off, or recapitalization, our attorneys provide the clarity and confidence needed to execute complex reorganizations.