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STRUCTURING TAX FREE MERGERS AND ACQUISITIONS - vtbar

STRUCTURING TAX FREE MERGERS AND ACQUISITIONS - vtbar 2025

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The document discusses the structuring of tax-free mergers and acquisitions, emphasizing the importance of achieving non-taxable outcomes in business combinations. It outlines various planning techniques for different types of entities, including C Corps, S Corps, LLCs, and partnerships. The document highlights the complexities involved in compliance with federal and state tax laws, creative planning to minimize adverse tax consequences, and the often-overlooked impact of state sales and transfer taxes. Additionally, it provides a framework for understanding common traps in structuring tax-free business combinations.

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What are the tax implications of merger and acquisition?

One of the most important tax considerations in MA transactions in India is capital gains tax. When a company or its shareholders transfer ownership in the form of shares or other capital assets, the profits from such transactions are subject to capital gains tax under the Indian Income Tax Act.

Is a reverse triangular merger taxable?

A reverse triangular merger, like direct mergers and forward triangular mergers, may be either taxable or nontaxable, depending on how they are executed and other complex factors set forth in Section 368 of the Internal Revenue Code.

Is a reverse triangular merger tax-free?

Depending on how the deal is executed, a reverse triangular merger can be either taxable or nontaxable. If it is taxable, then it is treated as a stock purchase as described above. On the other hand, it can also be structured as a tax-free reorganization if it qualifies under Internal Revenue Code Section 368(a)(2)(E).

What is the difference between Section 351 and 368?

Section 351 Mergers The most notable advantage of Section 351 over Section 368 is that the former does not require continuity of ownership interest, which restricts the amount of non-taxable consideration (acquirer stock) that the targets shareholders may receive.

What are the tax benefits of a reverse merger?

For companies with accumulated losses, reverse mergers can be particularly advantageous. Under Section 72A of the ITA, the private company can carry forward its tax losses to the merged entity, subject to specific conditions. This provision can significantly enhance the post-merger tax position of the combined company.

What happens to stock in a reverse triangular merger?

In a reverse triangular merger, the acquirer creates a subsidiary that merges into the selling entity and then liquidates, leaving the selling entity as the surviving entity and a subsidiary of the acquirer. The buyers stock is then issued to the sellers shareholders.

What is structuring in MA?

An MA deal structure is a binding agreement between parties in a merger or acquisition (MA) that outlines the rights and obligations of both parties. It states what each party of the merger or acquisition is entitled to and what each is obliged to do under the agreement.

Is a reverse stock split a taxable event?

Stock splits dont create a taxable event; you merely receive more stock evidencing the same ownership interest in the corporation that issued the stock. You dont report income until you sell the stock. Your overall basis doesnt change as a result of a stock split, but your per share basis changes.

STRUCTURING TAX FREE MERGERS AND ACQUISITIONS - vtbar 2025

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