Document Type

Article

Publication Title

Hastings Law Journal

Abstract

A transaction in which one corporation (the "acquiring corporation") exchanges its stock for stock of another corporation (the "acquired corporation") is a "B" reorganization if, after the exchange, the acquiring corporation is in control of the acquired corporation.' For federal income tax purposes, B reorganizations are nontaxable to all parties concerned. For many years the view has prevailed that the transfer of any consideration other than stock of the acquiring corporation, "boot," disqualifies the transaction as a B reorganization. That view is premised upon the word "solely" in the definitional section of the Internal Revenue Code, section 368(a)(1)(B). This requirement, which originated in the Revenue Act of 1934, on its face would appear to limit B reorganizations to pure stock-for-stock exchanges. The argument that "solely" should be interpreted liberally, so that an otherwise permissible B reorganization would not be destroyed by the presence of a small amount of boot, had never succeeded. This Article is not confined to the narrow issue, decided in Reeves and Pierson, of how to interpret "solely." It is equally concerned with a number of related issues that continue to cloud the treatment of B reorganizations. Reeves and Pierson, however, do provide a convenient factual backdrop for discussion. The Article considers the meaning of the statutory language a "plan of reorganization," the proper role of the step transaction doctrine, the definition of "solely," "creeping" acquisitions, and legislative reform addressed to confusion caused by each. These subjects are discussed under the direct influence of the policy behind the tax-free treatment of reorganizations, a policy which, as the government's position in Reeves and Pierson demonstrates, too often is lost in the labyrinth of detail that has marked the developing treatment of corporate reorganizations. Only a modest attempt is made to reconcile the remarks herein with possibly conflicting notions expressed in the thicket of cases and rulings dealing with other types of reorganizations. A fresh look at the fundamental requirements of a B reorganization, and the reasons for them, is more useful.

First Page

993

Volume

31

Publication Date

1980

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