Regulations finalize rules on all-cash D reorganizations

BY SALLY P. SCHREIBER, J.D.

On Monday, the IRS finalized temporary regulations regarding the determination of the basis of stock or securities in all-cash D reorganizations where no stock or securities of the issuing corporation is issued and distributed in the transaction (T.D. 9702). The regulations clarify that in these transactions, only a shareholder that owns actual shares of the issuing corporation will be able to designate the issuing corporation’s share of stock to which the basis (if any) of the stock or securities surrendered will attach.

Under Sec. 368(a)(1)(D), a D reorganization generally occurs when one corporation transfers all or a part of its assets to another corporation if, immediately after the transfer, the target corporation or one or more of its shareholders, or any combination of those, is in control of the acquiring corporation.

The IRS issued the temporary regulations in 2011 after it became aware of what it considered to be an invalid interpretation of earlier regulations on all-cash D reorganizations involving transactions where the consideration received in a reorganization consists solely of cash and a nominal share. Some practitioners had claimed that those rules permitted basis to be allocated to parties that did not own actual shares of stock in the issuing corporation. In the preamble to T.D. 9702, the IRS said it received no comments on the 2011 regulations and that the regulations were being adopted without substantive changes. However, the final regulations contain a number of clarifying changes.

The final regulations apply to transactions occurring on or after Nov. 12, 2014.

Sally P. Schreiber ( sschreiber@aicpa.org ) is a JofA senior editor.

SPONSORED REPORT

Tax reform changes are now in effect

With all the recent tax law changes, this year it’s more important than ever to make sure your clients’ tax situations are squared away before year end. This report provides necessary guidance to ensure 2019 starts without a hitch.

PODCAST

Using drones to enhance audits

Hermann Sidhu, CPA, global assurance digital leader at EY, walks us through EY’s exciting new project to use drones to help audit large warehouses and outdoor inventories.