Taxpayer asserts failed “G” reorganization, IRS Chief Counsel agrees
TAX ALERT |
In a recent Chief Counsel Advice (CCA 201523001), the IRS agreed with a taxpayer's findings that their restructuring did not qualify as a "G" reorganization under section 368(a)(1)(G). In order to qualify as a G reorganization, the restructuring would first need to come out of a Chapter 11 bankruptcy or similar proceeding, and also qualify under section 354, 355 or 356. Sections 354 and 355 dictate requirements for non-divisive and divisive transactions, respectively, where there is no "boot" involved and section 356 expands the qualifications of these two sections to include transactions that do include boot. In either section 354 or 355, the stock of the entity acquiring the assets that is used as consideration for the assets needs to be distributed to the selling entity's shareholders/creditors. In particular, in section 354 transactions, the acquiring stock must be exchanged for stock or securities of the selling corporation. In this CCA, the selling entity's shareholders did not receive such a distribution. While the creditors did receive distributions, the instruments given up in exchange for the distribution did not constitute a security for the purposes of section 354, and therefore, the section 354 hurdle of section 368(a)(1)(G) was not satisfied. Contact your tax advisor for further information.