By Rick Bailine, Managing Director, Washington National Tax
Under the Internal Revenue Code, no fewer than nine different types of reorganizations permit one corporation to acquire a second corporation in a tax-free (really tax-deferred) manner. The statutory merger, by far the most common form of reorganization in the manufacturing community, has three types and certainly represents the predominant method of acquisition.
In addition to briefly detailing each of the three types of allowable statutory mergers, this white paper focuses on three areas that can lead to trouble, including issues related to cash mergers, due diligence and one of the most misunderstood rules in corporate taxation, the step transaction doctrine.
Any agreement involving the transfer of large amounts of assets and liabilities should not be considered lightly, as trouble spots can arise. But if properly considered, these difficulties can be effectively dealt with to help the overall transaction achieve both the desired business and tax results.